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Dufault v. Ignace: Why One Defective Termination Clause Can Void Your Entire Employment Contract
Ontario employers who have not reviewed their employment contracts recently may be carrying a liability they do not know about. The 2024 Court of Appeal decision in Dufault v. Township of Ignace (2024 ONCA 915) confirms what has been building in Ontario courts since Waksdale v. Swegon North America Inc. in 2020: a single defective termination provision voids the entire termination framework in the contract. The employer cannot sever the bad clause and rely on the rest. The result in Dufault was liability for over $157,000 the full remaining value of a fixed-term contract when a properly drafted clause would have limited exposure to ESA minimums.
Does your employment contract contain a for-cause termination clause that goes beyond the ESA's narrow wilful misconduct standard?
If it does, the entire termination framework in that contract may be void including your without-cause clause. Get your contracts reviewed before you need to rely on them. The cost of a review is a fraction of a common law notice or fixed-term liability award.
Call: 1-800-771-7882 Get Your Contracts ReviewedWhat happened
Karen Dufault was the Chief Administrative Officer of the Township of Ignace, employed under a fixed-term contract. She was dismissed without cause. Her contract contained both a for-cause and a without-cause termination provision. The for-cause clause permitted termination without notice or pay if she failed to perform her duties a standard significantly lower than the Employment Standards Act, 2000's narrow threshold of wilful misconduct, disobedience, or wilful neglect of duty.
The Township argued its without-cause clause was valid and should be read independently. The Court of Appeal rejected this, applying the principle from Waksdale that all termination provisions must be read together. Because the for-cause clause violated the ESA, the entire termination framework was void. With no enforceable termination clause, Dufault was entitled to the balance of her fixed-term contract over $157,000.
What the Court of Appeal confirmed
All termination provisions are read together
The Court of Appeal reaffirmed the principle from Waksdale: for-cause and without-cause termination provisions are not read independently. If any part of the termination framework violates the ESA, the entire framework is void. The employer cannot sever the invalid clause and enforce the rest. This is not a new rule it is an established principle that Ontario courts apply consistently.
The for-cause standard must track the ESA precisely
The ESA permits termination without notice or pay only for wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned. The Township's for-cause clause permitted termination for failure to perform duties a much lower and broader standard. Even this slight deviation from the statutory threshold was enough to void the clause and, by extension, the entire termination framework.
Compliance at termination does not cure a defective clause
The Township provided notice consistent with the ESA when it terminated Dufault. This did not save the clause. Ontario courts assess whether the termination clause complies with the ESA as written at the time it was signed not whether the employer happened to comply with the Act when it terminated the employee. A clause that could theoretically permit less than the ESA minimum is unenforceable regardless of what the employer actually did.
Fixed-term contracts amplify the stakes dramatically
In an indefinite employment contract, voiding the termination clause defaults the employee's entitlement to common law reasonable notice a significant exposure but one that is calculable. In a fixed-term contract, voiding the termination clause means liability for the full remaining term of the contract. For longer fixed-term agreements with senior employees, this can represent years of compensation. The combination of a fixed-term contract and a defective termination clause is one of the highest-risk scenarios in Ontario employment law.
Three employer lessons from this decision
Your for-cause clause must use ESA language precisely
The for-cause threshold under Ontario's ESA is narrow and specific: wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned. Any clause that broadens this threshold by referring to failure to perform, unsatisfactory performance, or any variation that sets a lower bar is non-compliant. Many standard employment contract templates contain exactly this kind of language. If your for-cause clause was drafted more than a few years ago or uses generic language, it is a significant risk that needs to be assessed and corrected before your next termination.
A valid without-cause clause cannot save an invalid for-cause clause
Employers sometimes assume that because they only ever intend to terminate without cause, the for-cause language in their contract does not matter. The Court of Appeal has rejected this reasoning repeatedly. All termination provisions are read together as a single framework. If the for-cause clause is defective, the without-cause clause however well-drafted is also void. The practical implication is that every termination clause in every contract needs to comply with the ESA, not just the provision the employer expects to use.
Fixed-term contracts require extra scrutiny before signing
In an indefinite contract, a void termination clause results in common law reasonable notice liability significant but manageable. In a fixed-term contract, the same defect results in liability for the full remaining contract term with no cap. The longer the term and the more senior the employee, the higher the exposure. Before entering into any fixed-term arrangement, the termination clause must be reviewed and confirmed as compliant. The Dufault decision is a reminder that the stakes of getting this wrong in a fixed-term context are categorically higher than in an indefinite employment relationship.
When did you last have your termination clauses reviewed against current Ontario case law?
The Dufault and Waksdale decisions have raised the compliance standard for termination clauses significantly. Our team advises employers across Ontario on employment agreements and termination clause drafting. Get your contracts reviewed before you need to rely on them.
Get Your Contracts Reviewed Or call us: 1-800-771-7882Practical takeaways for Ontario employers
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