|
Employment - Contracts - Interpretation. Baker v. Van Dolder’s Home Team Inc.
In Baker v. Van Dolder’s Home Team Inc. (Ont CA, 2026) the Ontario Court of Appeal considered two consolidated wrongful dismissal appeals, these relating to the rule that specific contractual termination provisions that fail to be ESA-compliant are void - and that common law pay in lieu of notice principles are thus re-instated.
Here the court attempts to resolve some difficulties that this area of law has experienced, emphasizing that one must not be over-eager to find 'ambiguity' [see para 32]:[1] In 2018, this court observed that, despite a myriad of cases considering whether termination clauses are compliant with the Employment Standards Act 2000, S.O. 2000, c. 41 (the “ESA”), “[i]t is fair to say that not all of the cases can be easily reconciled”: see Amberber v. IBM Canada Ltd., 2018 ONCA 571, 424 D.L.R. (4th) 169, at para. 42. At around the same time, a leading practitioner in the field delivered a much blunter assessment, arguing that “[c]ounsel can do little more than guess at the answers to the central questions of when a termination clause will be upheld as valid and enforceable, and as displacing the employee’s common law entitlement to reasonable notice or pay in lieu thereof”: see Stephen J. Moreau, “Fixing the Broken Law of Termination Clauses” (2020) 22:2 C.L.E.L.J. 143, at p. 143. One of Moreau’s chief complaints was that virtually identical termination clauses might in one case be found to be inconsistent with the ESA and therefore void, but in another be found to be valid and enforceable. He explains, “[t]he case law has often divided sharply on what can only be described as the most pedantic or trivial of grounds … [t]he failure to insert, or not insert, a word has often been fatal”: Moreau, at p. 149.
[2] The two orders under appeal suggest that the uncertainty in the jurisprudence governing termination provisions in employment contracts has yet to be satisfactorily resolved. The impugned language in the without cause termination provisions in the two contracts at issue were virtually identical. Yet in Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952 (“Baker v. Van Dolder”), the inclusion of the words “at any time” was held to be inconsistent with the ESA, rendering the termination clause unenforceable, whereas in Li v. Wayfair Canada ULC., 2025 ONSC 2959, 99 C.C.E.L. (4th) 242 (“Li v. Wayfair”), a provision permitting without cause termination “at any time and for any reason” was held to be valid and enforceable.
[3] These appeals provide an opportunity to clarify the relevant legal principles governing the interpretation of termination provisions in employment contracts. This will not only assist trial courts which must determine the enforceability of such provisions but, more importantly, serve the mutual interest of the parties to such agreements, who might thereby be spared the necessity of litigating an issue of considerable consequence at a time when employees are particularly vulnerable.
[4] The interpretive framework I set out below, far from being novel, is an elaboration of established principles endorsed by this court as well as the Supreme Court of Canada on numerous occasions. These established principles begin with the recognition that employment contracts must be interpreted differently than other commercial agreements so as to further employment law principles, most notably the desirability of protecting the interests of vulnerable employees. At the same time, determining the meaning of an employment contract is still an exercise in contractual interpretation, with the goal being to understand the objective intentions of the parties as expressed in the wording of the contract as a whole, understood in light of the relevant surrounding circumstances.
[5] Applying this interpretive framework to the termination provisions in the two contracts at issue in these appeals, I find that the wording of the provisions, considered in the context of each contract as a whole and the relevant surrounding circumstances, reflects an objective intention to comply with the minimum standards in the ESA applicable upon the termination of employment. That interpretation is consistent with employment law principles – it protects employees by giving effect to the terms they would reasonably be understood to have agreed to. ....
....
A. Governing interpretive principles
[28] It has long been recognized that a contract of employment “has many characteristics that set it apart from the ordinary commercial contract”: Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701, at para. 91. These characteristics include the importance of employment to an individual’s dignity and sense of self-worth; the pronounced power imbalance between employers and employees; and the fact that individual employees generally lack bargaining power vis-à-vis their employer in negotiating more favourable contract terms, especially concerning tenure: see Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), [1992] 1 S.C.R. 986, at pp. 1002-03; Wallace, at paras. 90-94; Ceccol v. Ontario Gymnastic Federation (2001), 2001 CanLII 8589 (ON CA), 55 O.R. (3d) 614 (C.A.), at paras. 47-48; and Wood, at paras. 25-28.
[29] Employees are most vulnerable and in need of protection at the point at which the employment relationship ruptures: Wallace, at para. 95. Given this need, courts have given prominence to the remedial nature of the ESA, s. 5 of which prevents parties from contracting out of its standards, and have favoured interpretations of termination provisions in employment contracts which encourage employers to draft agreements that comply with it. This is because “[i]f the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship”: Wood, at para. 28, citing Machtinger, at p. 1004. Although parties may agree to termination without reasonable notice as required at common law, they may not agree to do so in a way that limits the employer’s obligations under the ESA. A termination clause will rebut the presumption of reasonable notice at common law and comply with the ESA only if its wording is clear and, if a termination clause could reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee: Wood, at paras. 20, 28; Ceccol, at para. 49.
[30] At the same time, the determination of the meaning of an employment contract is still an exercise in contractual interpretation. The modern approach to contractual interpretation has shifted away from technical and legalistic formulations and towards a “practical, common-sense approach” that focuses on the objective intention of the parties in light of the words used and the surrounding circumstances: Sattva, at paras. 47, 49, 56-58. The overriding concern is to ascertain “what the parties would have reasonably understood their words to mean and to ensure the parties’ objective intention is not thwarted by strict rules of interpretation…”: Earthco, at para. 95. To achieve this objective, courts must “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva, at para. 47.
[31] The requirement that contracts must be interpreted in light of their surrounding circumstances is important. It is premised on the fact that contractual intention cannot be properly ascertained by looking at words in isolation, since “words alone do not have an immutable or absolute meaning”: Sattva, at para. 47; Earthco, at para. 64. Thus, while “the meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean”: Sattva, at para. 48, citing Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.), at p. 115. Moreover, courts should avoid a legalistic “magic words” approach whereby the use of certain words considered in isolation will necessarily determine the legal effect of a contractual provision: see Earthco, at para. 98.
[32] A further important interpretive principle is that a contractual provision is not ambiguous merely because it is possible to identify multiple potential or hypothetical interpretations. Genuine ambiguity only arises where there are two or more reasonable but differing interpretations considered in the context of the entire contract: Amberber, at paras. 43-45; Bertsch v. Datastealth Inc., 2025 ONCA 379, at paras. 9-11; see also Emond v. Trillium Mutual Insurance Co., 2026 SCC 3, 509 D.L.R. (4th) 583, at paras. 37-47. Moreover, courts should not strive to find an ambiguity where none reasonably exists: Amberber, at para. 65. At paras 33-80 the court successively walks through the wording of the two involved contracts and interprets them as ESA-compliant, chastising the lower court for failing to read the contract 'as a whole' (specifically, these broad encompassing terms such as 'at any time' or 'for any reason' are always limited by a presumption of ESA-compliance):[53] I conclude that there is no conflict between the inclusion of the Impugned Words in the Without Cause Provision and statutory provisions in the ESA or other statutes which limit when or why an employer can terminate a contract of employment. The motion judge’s finding to the contrary proceeded on the basis of an error in principle, namely, reading the words literally and in isolation without regard to the parties’ objective mutual intentions. With respect, his analysis strained to find an ambiguity where none existed. I would therefore set aside his finding and instead find that the Without Cause Provision in Mr. Baker’s employment contract is compliant with the ESA.
....
[61] Just as courts have frequently found without cause provisions with the wording “at any time” to be enforceable, many Ontario judges have enforced provisions containing the words “for any reason” (or analogous phrases like “at its sole discretion”): see e.g., Oudin v. Centre Francophone de Toronto, 2016 ONCA 514, 34 C.C.E.L. (4th) 271, at paras. 2, 10, leave to appeal refused, [2016] S.C.C.A. No. 391; Dimson v. KTI Kanatek Technologies Inc., 2013 ONCA 454, 10 C.C.E.L. (4th) 309, at paras. 5, 7; Clarke v. Insight Components (Canada) Inc., 2008 ONCA 837, 70 C.C.E.L. (3d) 13, at paras. 1, 6; Gracias v. Dr. David Walt Dentistry, 2022 ONSC 2967, 79 C.C.E.L. (4th) 224, at paras. 57, 94; Raposo v. CA Canada Company, 2018 ONSC 4226, 49 C.C.E.L. (4th) 329, at paras. 10, 46; Simpson v. Global Warranty Management Corporation, 2014 ONSC 724, at paras. 8, 75, 77, aff’d 2014 ONSC 6916 (Div. Ct.); and Nikolic v. Computer Associates, [2000] O.T.C. 458 (S.C.), at paras. 4, 19.
[62] The words “for any reason” simply mean that a termination will be consistent with the contract and therefore legally effective regardless of the reason for the termination. Putting it another way, the employer is not required to give the employee a reason for terminating the employment contract. They simply need to provide the employee with their contractual entitlement on termination, express or implied, which must, at a minimum be the ESA entitlements. But the fact that the employer is not required to give a reason for terminating a contract without cause does not mean that the employer could plausibly maintain that the contract somehow purported to exempt it from prohibitions on termination found in the ESA, such as ss. 53 and 74.
....
V. Conclusion
[83] For the above reasons, the termination provisions in both employment contracts reflect an objective intention to provide Mr. Baker and Mr. Li with the minimum statutory entitlements set out in the ESA. The provisions are thus valid and enforceable.
[84] Because this result rebuts the presumption of common law reasonable notice to which Mr. Baker and Mr. Li would otherwise have been entitled, it might be thought to be a harsh outcome that fails to give effect to the remedial purpose of the ESA. But this cannot be the case because the ESA itself contemplates that the presumption of reasonable notice is a mere common law principle that can be excluded by express contractual terms to the contrary. If the minimum entitlements under the ESA are for any reason deemed to be insufficient or inadequate substitutes for common law reasonable notice, that is a matter for the legislature rather than the courts. The proper judicial role is to focus “on what the parties objectively intended and what they reasonably understood their words to mean” (Earthco, at para. 64), rather than straining to find ambiguity where none exists, on the assumption that such an approach will somehow benefit employees.
[85] In any event, it is far from obvious that such a search for ambiguity will actually benefit employees in the long run. This is because formalistic or technical interpretations of contractual language without regard to the intentions of the parties leads to indeterminacy and inconsistent results: see Earthco, at para. 96. Very few employees possess the resources required to undertake litigation to resolve such ambiguity. . Baker v. Van Dolder’s Home Team Inc.
In Baker v. Van Dolder’s Home Team Inc. (Ont CA, 2026) the Ontario Court of Appeal considered two consolidated wrongful dismissal appeals, these relating to the rule that specific contractual termination provisions that fail to be ESA-compliant are void - and that common law pay in lieu of notice principles are thus re-instated.
Here the court endorses the contractual 'dealing with' (my term) ESA entitlements within employment contracts:[79] .... It is well established that employers may referentially incorporate ESA entitlements in an employment contract and that such provisions are valid: Machtinger, at pp. 1004-05; Roden, at paras. 61-62; and Nemeth v. Hatch Ltd., 2018 ONCA 7, 418 D.L.R. (4th) 542, at para. 11. . Dufault v. Ignace (Township)
In Dufault v. Ignace (Township) (Ont CA, 2024) the Ontario Court of Appeal dismissed a municipality's wrongful dismissal appeal, here where the action was heard by summary judgment and grounded without cause. The central issue was the extent of the employment contract-voiding effect of it's ESA-breaching provisions (Waksdale).
Here the court considers the interpretation of employment contracts:[12] Laskin J.A. summarized the law regarding the interpretation of employment contracts in Woods, at paras. 28, 44-51. Three points are of particular importance for this appeal. First, the ESA is remedial legislation, intended to protect the interests of employees. As a result, courts should favour an interpretation of the ESA that encourages employers to comply with its minimum standards over an interpretation that does not do so.
[13] Second, termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. If the only consequence for an employer of drafting a termination clause that does not comply with ESA minimum standards is an order that they comply, employers will have little incentive to draft a lawful termination clause at the start of the employment relationship.
[14] Third, the interpretation of a termination clause and whether it meets the minimum standards set out in the ESA is based on the wording of the clause. Thus, even if the employer complies with the ESA minimum standards at the time of termination, that compliance does not have the effect of remedying a termination provision that does not comply with the ESA minimum standards in a contract entered into at the beginning of the employment. . De Castro v. Arista Homes Limited
In De Castro v. Arista Homes Limited (Ont CA, 2025) the Ontario Court of Appeal dismissed an employer's appeal of a successful wrongful dismissal case.
Here the court considered interpretation of employment contracts:[14] Finally, the motion judge’s approach reflects a careful application of established principles governing the interpretation of employment contracts. Courts have recognized that such contracts are generally interpreted differently than other commercial agreements to protect the interests of employees: see Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, 412 D.L.R. (4th) 261, at paras. 26-28. Employees have less bargaining power than employers. Furthermore, employees are far less likely than employers to be familiar with the standards dictated by the ESA.
[15] Because the ESA is “remedial legislation, intended to protect the interests of employees”, courts are to adopt an interpretation that best achieves this objective: Wood, at para. 28. That means an interpretation that “encourages employers to comply with the minimum requirements of the Act” and “extends its protections to as many employees as possible”: Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), [1992] 1 S.C.R. 986, at p. 1003. The contract is to be read as a whole, with any ambiguity construed in favour of the employee. . Bertsch v. Datastealth Inc.
In Bertsch v. Datastealth Inc. (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, here from the "dismissal of the appellant’s wrongful dismissal action".
The court considers contract interpretation in the employment context, here favouring the employee:[8] The appellant submitted that the motion judge erred when he refused to find that the termination clause was ambiguous. He asserted that, while a person trained in the law might find the clause unambiguous, an ordinary person might understand, incorrectly, that they could be terminated from their employment without notice for conduct such as negligence.
[9] We see no error in the motion judge’s disposition of the r. 21 motion. In Amberber v. IBM Canada Ltd., 2018 ONCA 571, 424 D.L.R. (4th) 169, this court observed, at para. 43, that “[w]here a termination clause can reasonably be interpreted in more than one way, the interpretation that favours the employee should be preferred”. A finding of ambiguity, however, means “something more than the mere existence of competing interpretations”: Amberber, at para. 45.
[10] Contrary to the appellant’s submissions, this is not a case where the agreement uses legal terms or language that might be confusing to a person not versed in the law. The appellant’s counsel suggests that because the average employee may believe that a person can be terminated for cause without notice, they could read the termination agreement to provide for termination for cause for any reason without payment. Such a reading would require the employee to ignore the words “with or without cause”.
[11] In any event, the issue is not whether an ordinary person might arrive at an incorrect interpretation of the termination provisions of the employment agreement, but how the agreement can be reasonably interpreted. The termination provision specifically states that an employee who is terminated “with or without cause” will receive the minimum payments and entitlements under the ESA and its regulations. We see no error in the motion judge’s conclusion that the termination provision in the employment agreement is unambiguous, and that, when reasonably interpreted, it does not depart from the minimum standards guaranteed by the ESA. As such, the termination provision is enforceable and precludes the appellant’s claim for common law damages for wrongful dismissal. . Oz Optics Limited v. Summers
In Oz Optics Limited v. Summers (Div Court, 2023) the Divisional Court considers the interpretation of employment contracts:Interpretation of Employment Contracts
[15] The Court of Appeal has stressed that employment contracts should be interpreted differently from other commercial agreements. The court included the following as considerations in that exercise:(a) Many employees are likely unfamiliar with employment standards in the ESA and the obligations the statute imposes on employers.
(b) The ESA is remedial legislation intended to protect the interests of employees. Courts should therefore favour an interpretation of the legislation that encourages employers to comply with the minimum standards of the Act.
(c) Termination clauses should be interpreted in a way that encourages employers to draft agreements which comply with the ESA.
(d) Faced with a termination clause that could be reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee. See Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, 134 O.R. (3d) 48, at para. 28.
|
