Is Your Termination Clause Enforceable?

The whole severance question often turns on one paragraph written years earlier, and that paragraph fails more often than employers expect.

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Contract Interpretation | Statutory Compliance | Severability | Consequences

Why so many clauses fail.

A clause that could breach the Act at any point is void, even if it was not applied.

An invalid just cause provision can invalidate the whole termination scheme.

A severability clause does not usually rescue an offending term.

A contract signed after employment began may lack fresh consideration.

Quick Answer

What makes a termination clause unenforceable in Ontario?

A termination clause is unenforceable if it could, at any point in the employment relationship, provide less than the Employment Standards Act requires. Courts assess the clause as drafted rather than as applied, so an employer cannot rescue it by paying more than the clause allows. In Waksdale v Swegon North America Inc., the Court of Appeal for Ontario held that an invalid just cause provision rendered the entire termination scheme unenforceable, including a without cause provision that was itself compliant. Where the clause fails, common law reasonable notice applies instead.

Ontario law · Reviewed by Lexaltico LLP, Toronto · Arrange a consultation

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WHY IT MATTERS SO MUCH

One Paragraph Decides Most of the Money

If a termination clause is enforceable, entitlement is whatever it says, frequently the statutory minimum. If it is not enforceable, common law reasonable notice applies, which for a long serving or senior employee can be many times larger.

That makes the enforceability question the first thing to examine in almost every dismissal, before any negotiation about amount. Negotiating a percentage improvement on a figure produced by a clause that is void is negotiating from the wrong baseline entirely.

It is also the question employers most often get wrong, because contracts are frequently drawn from templates, copied between companies, and left unrevised while the case law moves.

HOW CLAUSES FAIL

Drafted, Not Applied

The central principle is that the clause is assessed as written, at the time the contract was made, and against every scenario it could cover. If it could produce a result below the statutory floor at any point in the relationship, it is void. An employer who in fact paid more does not save it.

Common failures include clauses that provide only notice without addressing severance pay for qualifying employees, clauses that stop benefit continuation during the notice period, clauses that fix a maximum that would fall below the statutory entitlement after enough years of service, and clauses that purport to permit dismissal for just cause on a standard lower than the wilful misconduct standard in the regulations.

Waksdale v Swegon North America Inc. is the decision that changed the landscape. The Court of Appeal held that the termination provisions are read as a whole, so an unenforceable just cause provision invalidated the without cause provision as well, even though the employer had dismissed without cause and the without cause wording was itself compliant.

WHAT DOES NOT SAVE IT

Severability, Saving Clauses and Good Intentions

Employers frequently rely on a severability clause, expecting the offending words to be struck out and the rest preserved. Courts have generally declined to use severability to rescue a termination provision, on the reasoning that doing so would remove any incentive to draft compliant contracts in the first place.

Saving language promising that the employee will always receive at least the statutory minimum has had a mixed reception and is not a reliable answer where the operative words are themselves offside.

There is also the question of consideration. A contract presented after employment has begun, or an updated contract imposed without anything new in return, may fail for want of fresh consideration regardless of what it says. Continued employment alone is generally not enough.

HOW WE WORK

What to Bring, and What to Expect

Bring every version of your employment contract, including the original offer letter, any signed agreement, and any subsequent amendments or promotions letters. Bring the date you started work and the date each document was signed, because the sequence matters.

Expect the first analysis to be about the document rather than the dismissal. The clause either survives or it does not, and everything after that follows from the answer.

Expect a realistic view. Not every clause fails. Some are carefully drafted, current with the case law, and will hold. Being told that early is more useful than being encouraged into a claim that the contract answers.

Common Questions

Frequently Asked Questions

What makes a termination clause unenforceable in Ontario?

A clause is void if it could provide less than the Employment Standards Act requires at any point in the relationship. Courts assess the clause as drafted rather than as applied, so paying more than the clause allows does not save it.

What is the Waksdale decision?

In Waksdale v Swegon North America Inc., the Court of Appeal for Ontario held that termination provisions are read as a whole, so an unenforceable just cause provision invalidated the without cause provision as well, even though the employer dismissed without cause.

Does a severability clause fix an invalid provision?

Generally no. Courts have declined to use severability to rescue termination provisions, reasoning that it would remove the incentive to draft compliant contracts.

I signed a new contract years after I started. Is it binding?

Possibly not. A contract imposed after employment began may fail for want of fresh consideration. Continued employment alone is generally not sufficient consideration.

What happens if the clause fails?

Common law reasonable notice applies instead, assessed on the Bardal factors. For long serving or senior employees that is frequently many times the statutory minimum.

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Termination Clause Review | Ontario | Lexaltico LLP

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Were you dismissed fairly?

Five questions. It will not tell you what your claim is worth, because nobody can do that from five answers. It will tell you which rules are engaged and what is running out.

This is general information about Ontario law, not legal advice, and it does not create a solicitor client relationship. It gives no estimate of value. Lexaltico LLP is regulated by the Law Society of Ontario.

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Is Your Termination Clause Enforceable?

What makes a termination clause unenforceable in Ontario?

Speak to an Employment Lawyer

One Paragraph Decides Most of the Money

Drafted, Not Applied

Severability, Saving Clauses and Good Intentions

What to Bring, and What to Expect

Frequently Asked Questions

Termination Clause Review | Ontario | Lexaltico LLP

Lexaltico LLP

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Were you dismissed fairly?

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