Recent Court Decision Removes Employer’s Home-Court Advantage
A recent case concerning the enforceability of termination provisions in an employment agreement takes the law two steps further in favour of employees.
In Baker v Van Dolder’s Home Team Inc, 2025 ONSC 952 (CanLII) [“Home Team”], Justice Sproat found that termination provisions intending to comply with the Employment Standards Act, 2000 (the “ESA”) were unenforceable. The court also found that the termination provisions failed to comply with the ESA in a relatively new way.
Expect to see a lot of bad puns from employment lawyers about this victory for the ‘away team’.
Quick Summary:
Arguably, Home Team breaks new ground in finding that:
- A for-just-cause termination provision in an employment agreement was unenforceable, despite including broad language designed to comply with the ESA. More specifically, the clause unsuccessfully attempted to account for rare potential scenarios in which ESA termination (and severance) entitlements would not be displaced by circumstances amounting to common law just cause for dismissal.
- The without-cause termination provision in the agreement was also unenforceable, because it purported to allow the employer to terminate the employment relationship “at any time”. Notably, the provision did not include language to indicate that the decision to do so was in the employer’s “sole discretion”, unlike the previous case Home Team
The upshot is that the court is continuing its trend of picking apart restrictive termination provisions to allow employees greater protections when they lose their employment.
A more detailed summary is below.
Overview of Termination Entitlements:
By way of background, in general, employees in provincially-regulated workplaces in Ontario are entitled to protections arising from termination of employment. These include minimum statutory entitlements pursuant to the ESA and, absent of an enforceable employment agreement that says otherwise, protections under the common law (i.e. the Judge-made law).
In some unusual scenarios, employees may lose their entitlements upon termination of employment. More specifically:
- If an employee is guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer (“Wilful Misconduct”), the ESA prescribes that the employee will be disentitled to minimum statutory termination and severance pay.
- If an employee behaves improperly and it is serious enough to warrant “just cause” for the immediate termination of their employment, then the employee will not be entitled to reasonable notice of their dismissal or pay in lieu of such notice at common law.
The thrust of recent caselaw regarding the enforceability of termination provisions rests on a minor, technical distinction between the above standards for removing statutory and common law entitlements, respectively. Both standards apply to only very limited circumstances where an employee has conducted themself egregiously, and the statutory standard is ever-so-slightly more narrow than the common law standard.
Many recent decisions of the Ontario courts have found that termination provisions are unenforceable for overlooking this slight distinction.
Unenforceable For-Just-Cause Provision:
In Home Team, Justice Sproat found that the for-just-cause termination provision was unenforceable for similar reasons, despite that on a literal reading, it would probably not be in breach of the ESA.
Justice Sproat followed Perretta v Rand A Technology Corporation, 2021 ONSC 2111 (CanLII) [“Perretta”], where Justice A. A. Sanfilippo determined a for-just-cause termination provision was unenforceable, despite accepting that it could be read in a way that was compatible with the ESA. That finding in Perretta was probably less ‘clear-cut’ than most. While the reasoning was consistent with many recent cases, it was perhaps applied in a more exacting way in favour of the employee.
In Home Team, the for-just-cause termination provision in question purported to allow the employer to terminate the employment relationship without prior notice or compensation “… except any minimum compensation or entitlements prescribed by the Employment Standards Act”. In other words, the employer attempted to account for the exceptionally rare potential scenario in which there were just cause for dismissal at common law, but the employee was still entitled to ESA entitlements upon termination of employment.
The defendant’s counsel in Home Team argued that the above phrasing was more fulsome than the corresponding phrasing in Perretta, in which the termination provision purported to allow the employer to terminate the employment relationship for cause without notice “… subject to the ESA”. Justice Sproat held that it was a “distinction without a meaningful difference”.
In Home Team, Justice Sproat found that the for-just-cause termination provision was unenforceable, emphasizing that an employment agreement is quite different than a commercial contract. In the court’s view, a regular employee cannot be expected to appreciate the technical differences in the common law definition of just cause and the ESA definition of Wilful Misconduct. The wording of the termination provision was potentially unfair because most employees would not have understood their entitlements upon termination.
Home Team reinforces the already progressive finding in Perretta and seems to reflect that the court has taken a step further because the phrasing designed for compliance with the ESA was at least somewhat more fulsome, yet it was also unenforceable.
Without-Cause Termination Provision:
Further, and perhaps more groundbreaking, in Home Team, Justice Sproat followed the Superior Court of Justice’s decision in Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (CanLII) [“Dufault”], where Justice H.M. Pierce found that a without-cause termination provision was unenforceable because it purported to give the employer “sole discretion” to terminate the employment relationship “at any time”.
The 2024 finding by the ONSC in Dufault that the without-cause termination provision breached the ESA reprisal (s.74) and reinstatement (s. 53) provisions was a significant and perhaps novel development in the law. That argument had been previously unsuccessful with the court, despite reasoning consistent with the principles of employment law.
As an aside, the Court of Appeal for Ontario recently declined to make any ruling on the enforceability of the without-cause termination provision in Dufault v Ignace (Township), 2024 ONCA 915 (CanLII), leaving the above development unresolved at the appellate level.
In Home Team, the without-cause termination provision in question used the phrase “at any time” but not the phrase “sole discretion”. In any event, Justice Sproat found that the without-cause termination provision was unenforceable.
Prior to the decision in Home Team, an argument that a termination was unenforceable because of the use of only one of the phrases “sole discretion” or “at any time” – depending on the wording of the provision, of course – was arguably not fully supported by Dufault.
The Home Team decision appears to bolster and expand the novel decision in Dufault in favour of employees. In our experience, the above phrases are often included in employment agreements. As a result, employees are more likely to be successful in challenging the enforceability of many termination provisions.
Takeaways For employees:
- Restrictive language in the termination provisions of an employment agreement may be misleading.
- Dismissed employees should contact an employment lawyer to find out if they may have greater entitlements than the amounts set out in a separation package presented to them.
- Judges will scrutinise the language of restrictive termination provisions for any potential technical flaws to render them unenforceable. Termination provisions even minor flaws may ‘not be worth the paper they are printed on’.
- Employment lawyers representing dismissed employees can rely on the progressive decision in Home Team, which increases the already high degree of scrutiny Judges use to consider if restrictive termination provisions should be upheld.
Takeaways For employers:
- The law concerning entitlements upon termination of employment is not straight forward. Employers may need to account for potential termination costs beyond what is printed ‘on the face’ of their respective employment agreements or consider alternate strategies.
- In light of the developments in Home Team, employers should retain employment counsel to assess if updates to their current employment agreements are warranted.
- Employers should also engage an employment lawyer to review offers of employment before providing them to prospective employees.
- Employment lawyers representing employers may wish to consider creative means of educating their clients’ prospective and current employees before they sign employment agreements. Such measures could increase the likelihood that subsequent termination provisions would be upheld by the court.
If you have questions about termination provisions in your contracts, contact Zubas Flett Liberatore Law LLP for counsel at 416-593-5844 or questions@employment-lawyers.ca.