Canada: Employers Do Not Have The Right To Terminate An Employee "At Any Time"

The Ontario Supreme Court recently ruled that employers do not have the right to terminate employees "at any time". The Court held that the termination clause was unenforceable because it could violate statutory protected leaves and improperly limited the employee's termination pay to base salary, disregarding other forms of compensation. This decision highlights the importance of adhering to employment standards legislation. Termination clauses will be unenforceable if they are, or could be, in breach of employment standards legislation at any time.

In Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, the Ontario Supreme Court ruled in favour of the dismissed employee, finding the termination clause of a fixed term employment contract was not enforceable. As a consequence, the Court awarded the employee damages for the remainder of the fixed term employment contract – approximately two years' wages.

The termination clause in the employment contract stated:

The Court reiterated that employment contracts are interpreted differently than other commercial contracts in order to protect the interests of employees. This is due to, for example, the presumed disparity in bargaining power between employees and employers.

The Court ruled that the termination clause in the employment contract was not enforceable for the following reasons:

• The "sole discretion" to terminate the employee "at any time" was in violation of the employment standards legislation. Similar to employment standards legislation in Alberta and other provinces, the Ontario Employment Standards Act provides employees with certain statutory protected leaves (such as maternity and parental leave). Thus, an employer does not have the right to terminate an employee at any time.

• Limiting the employee's termination pay to "base salary" was also in violation of the employment standards legislation. Similar to employment standards legislation in Alberta and other provinces, the Ontario Employment Standards Act prohibits employers from reducing the employee's wages during the statutory minimum termination notice period and requires employees to pay the employee the wages the employee would have otherwise earned if they had worked the statutory minimum termination notice period. This can include, for example, commission pay and other forms of compensation in addition to base salary.

As a consequence, a termination provision will not be enforceable if it is, or could be, in breach of employment standards legislation at any time.

Case law in the past few years has likely nullified most termination provisions. If you have not had your employment contracts updated in the last few years, the termination provisions are likely not enforceable. If the termination provisions are not enforceable, the consequences can be significant. Courts will award damages for the remainder of a fixed term contract or common law reasonable notice with a rough upper limit of 24 months for an indefinite term contract.

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