Ontario Courts Impact Employment Termination Clauses
The Ontario Court of Appeal has once again reinforced its strict stance on termination clauses in employment contracts. In Dufault v. Ignace (Township), 2024 ONCA 915, the Court confirmed that if any termination clause in an employment agreement violates the Employment Standards Act, 2000 (ESA), all termination provisions in the contract become unenforceable.
For employers, this ruling is a critical reminder that termination clauses must be drafted with extreme precision.
The Case in Brief
Karen Dufault, the Township of Ignace’s Chief Administrative Officer, was dismissed without cause. Her contract contained both “for cause” and “without cause” termination provisions.
The “for cause” clause allowed termination without notice or pay if she failed to perform her duties, a much lower standard than the ESA’s narrow “wilful misconduct” exception.
The Court held this wording made the clause illegal under the ESA.
Because of the 2020 Court of Appeal decision in Waksdale v. Swegon North America Inc., termination provisions must be read together. That meant the invalidity of the “for cause” clause also invalidated the “without cause” clause, even though Ms. Dufault was dismissed without cause.
The Court dismissed the Township’s appeal and upheld the award of damages equivalent to the remainder of Ms. Dufault’s fixed-term contract.
Why This Ruling Matters for Employers
This decision cements the Court of Appeal’s hard line on termination clauses:
- No Severing of “For Cause” from “Without Cause.” The Township asked the Court to reconsider Waksdale and allow severing. The Court refused. Employers cannot rely on a valid “without cause” clause if the “for cause” provision is unlawful.
- Precision Is Non-Negotiable. Termination clauses that broaden the definition of “cause” beyond the ESA standard even slightly will void the entire termination framework.
- Compliance Must Exist at Signing, Not Just at Termination. It doesn’t matter if an employer provides ESA-compliant notice when ending employment. If the clause itself is defective, it won’t stand.
- Risk of Costly Damages. Because Ms. Dufault was on a fixed-term contract, the Township was liable for the balance of her contract (over $157,000) instead of a limited notice period.
How Employers Should Respond
Given this ruling, employers across Ontario should take proactive steps:
- Review Existing Contracts. Any contract with broad or vague “for cause” language is at risk. Employers should have their agreements reviewed and updated.
- Avoid Boilerplate Clauses. Common templates often use wording that is now clearly unenforceable. Clauses must be carefully tailored to the ESA standard.
- Train HR and Management. Decision-makers need to understand that insisting on broad “cause” rights creates exposure, not protection.
- Consider Fixed-Term Risks. Where fixed-term contracts are used, the stakes are higher: if termination clauses are void, liability may extend to the full contract term.
Final Thoughts
The Dufault v. Ignace appeal confirms what Ontario courts have been signaling for years: termination clauses will be struck down if they deviate from the ESA in any way.
For employers, this is not just a drafting issue; it’s a risk management issue.
Now is the time for employers to:
- Audit contracts,
- Update termination language, and
- Ensure compliance before disputes arise.
The cost of inaction could be significant wrongful dismissal claims, especially in fixed-term contracts.
Review Your Employment Contracts Today
The Dufault v. Ignace decision highlights how even small drafting errors in termination clauses can lead to costly liability for employers. If your organization has not reviewed its employment contracts recently, now is the time.
Our team can audit and update your contracts to ensure they comply with the Employment Standards Act and the latest case law from Ontario courts. Taking proactive steps today can protect your business from wrongful dismissal claims and avoid expensive litigation tomorrow.
Contact us to schedule a consultation and safeguard your workplace contracts.
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Achkar Law Professional Corporation and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©
Workplace Law Topics: Employment Contracts, Executive Compensation, Contractor Agreements, Employment Dispute Defense