Executive Summary: Key Legal and Evidentiary Issues

• The Court of Appeal for Ontario considered two consolidated appeals asking whether "without cause" and "with cause" termination provisions in employment contracts were void for inconsistency with the Employment Standards Act, 2000 (the "ESA").
   
• Both contracts contained without cause clauses permitting termination "at any time," with Mr. Li's contract adding the phrase "for any reason."
   
• Mr. Baker's contract also contained a "with cause" provision listing categories of "just cause" broader than the ESA standard of wilful misconduct.
   
• Justice Monahan's reasons emphasized that termination clauses must be interpreted according to the parties' objective intentions in light of the contract as a whole, rather than by reading isolated phrases literally.
   
• Central to the analysis was whether phrases like "at any time" and "for any reason" could be read as authorizing terminations that the ESA and related statutes expressly prohibit.
   
• A further issue was whether Mr. Baker's with cause provision, despite guaranteeing minimum ESA entitlements, was unenforceable because it did not explain how the ESA's wilful misconduct standard differed from the contractual definition of just cause.
   

Facts of the case

Frederick Baker began working for Van Dolder's Home Team Inc. on November 2, 2020, as Controller and Head of Finance, earning an annual salary of $95,000 plus benefits. Van Dolder terminated his employment without cause on March 24, 2023, when he was 71 years old. Under section 57(b) of the ESA, Baker's tenure entitled him to two weeks' notice or pay in lieu. Van Dolder offered four weeks' pay in lieu of notice in exchange for a signed release, which Baker declined, and Van Dolder then paid him only the statutory minimum of two weeks. Baker sued for wrongful dismissal, arguing that the termination provisions in his contract were inconsistent with the ESA and therefore void, which would entitle him to common law reasonable notice instead. On a motion for summary judgment, Justice Sproat found both the without cause and with cause provisions in Baker's contract unenforceable, reasoning that the phrase "at any time" conflicted with ESA protections against termination during a leave or as reprisal for exercising statutory rights, and that the with cause provision was potentially unfair to employees unfamiliar with the ESA's wilful misconduct standard.

Song Li began working for Wayfair Canada ULC on January 23, 2023, as a Senior Product Manager, earning an annual salary of $221,546 plus benefits. Wayfair terminated his employment without cause on October 17, 2023, when he was 45 years old. Given his tenure of less than one year, section 57(a) of the ESA entitled him to one week's notice or pay in lieu, and he received one week's salary along with one week of continued benefits. Li commenced an action for common law damages, arguing that both the without cause and with cause provisions in his contract were inconsistent with the ESA. Justice Dow rejected this argument on a motion for summary judgment, finding the without cause provision enforceable because it repeatedly tied Li's entitlements to what was "required by" or "under" the ESA. Li did not appeal the finding on the with cause provision.

Van Dolder appealed the finding against it, and Li appealed the finding in Wayfair's favour; the two appeals were heard together because the impugned contractual language was nearly identical.

Policy and legislative provisions at issue

Baker's without cause provision permitted termination "at any time, without just cause," upon providing only the minimum notice or pay in lieu required by the ESA. His with cause provision permitted termination "at any time for just cause, without prior notice or compensation of any kind," except minimum ESA entitlements, and defined just cause to include six categories of misconduct such as dishonesty, theft, and violent or harassing conduct. A separate clause in his contract, titled the "Minimum Standards of the Employment Standards Act to Prevail," stated that Van Dolder would "at all times" comply with the ESA and that the ESA would prevail over any inconsistent contractual term.

Li's without cause provision permitted Wayfair to terminate his employment "at any time and for any reason" while providing only the minimum statutory notice, termination pay, severance, and benefits continuance required by the ESA, and stated that Li would receive "no less than" his statutory minimum entitlements. His with cause provision defined "Cause" by reference to the ESA's wilful misconduct standard.

The provisions were tested against sections 53, 57, 64(3), 74, and 132 of the ESA, sections 2(1)3 and 9(1)6 of the associated Termination and Severance of Employment regulation, and, for Li, section 50 of the Occupational Health and Safety Act. Sections 53 and 74 of the ESA restrict an employer's ability to terminate employment at certain times, including at the end of a statutory leave or in reprisal for exercising ESA rights, and section 132 makes a violation of those provisions an offence carrying penalties of up to twelve months' imprisonment or a $100,000 fine.

Reasoning and analysis

Justice Monahan, writing for the panel, held that termination clauses must be interpreted using the same modern approach as any other contract: courts should ascertain the parties' objective intentions from the words used, read in light of the contract as a whole and the surrounding circumstances, rather than isolating particular phrases. He cautioned against a "magic words" approach and against straining to find ambiguity where none genuinely exists.

Applying that framework, the court found that neither Baker's nor Li's employer could plausibly have intended the phrase "at any time" to authorize terminations that the ESA expressly prohibits. In Baker's case, the motion judge himself had found that Van Dolder intended only to comply with the ESA, and the contract's separate clause committing to ESA compliance "at all times" reinforced that the without cause provision was not meant to override statutory protections. The court traced this understanding to the Supreme Court's reasoning in Wallace v. United Grain Growers Ltd., which recognized an employer's general right to terminate employment "at any time," subject to any contrary contractual or statutory terms, and noted that Ontario courts have repeatedly upheld similar "at any time" language.

For Li's contract, the additional words "for any reason" did not change the analysis. The court reasoned that these words simply meant Wayfair was not obligated to provide a reason for termination, not that it could disregard statutory prohibitions tied to specific reasons for dismissal, particularly given the contract's repeated and explicit commitments to ESA-compliant notice, severance, and benefits continuance.

On Baker's with cause provision, the court distinguished it from clauses struck down in prior decisions such as Dufault v. The Corporation of the Township of Ignace, because Baker's contract expressly preserved his entitlement to minimum ESA compensation even if he were terminated for cause that fell short of wilful misconduct. The court rejected the motion judge's view that the clause was unenforceable merely because it failed to explain the difference between the contractual "just cause" standard and the ESA's "wilful misconduct" standard, holding that referential incorporation of ESA entitlements is legally sufficient and that the contract's wording was not ambiguous. Finally, the court declined to reconsider its earlier decision in Waksdale v. Swegon North America Inc., since both termination provisions in each contract were found to comply with the ESA, making that issue unnecessary to resolve.

Ruling and overall outcome

The court allowed Van Dolder's appeal, holding that both the without cause and with cause provisions in Baker's contract complied with the ESA and were enforceable. Because Van Dolder had already provided Baker with his full statutory entitlements, the court dismissed Baker's wrongful dismissal action and ordered Baker, as the unsuccessful party, to pay Van Dolder $2,500 in costs, inclusive of taxes and disbursements. The court dismissed Li's appeal, upholding the finding that the without cause provision in his contract complied with the ESA, and ordered Li, as the unsuccessful party, to pay Wayfair $10,000 in costs, inclusive of taxes and disbursements.