Your termination clause is probably unenforceable

Most Ontario employment agreements in circulation contain a termination provision a court will not enforce. The cost of that defect is not theoretical; it is the difference between paying a departing employee two weeks and paying them several months.

What the clause is for

Absent an enforceable agreement to the contrary, an employee dismissed without cause in Ontario is entitled to common law reasonable notice. Depending on age, length of service, seniority and how easily the role can be replaced, that can run to a month per year of service, and sometimes more. A termination clause exists to displace that entitlement and limit the employer to something closer to the statutory minimums under the Employment Standards Act.

That is a significant benefit to the employer, and Ontario courts have been increasingly strict about the conditions on which they will allow it.

Why so many clauses fail

The most consequential principle in this area is that the termination provisions of an agreement are read as a whole. If any part of them would permit the employer to do something the Employment Standards Act prohibits, courts have held that the entire termination scheme is unenforceable, including parts that would have been fine on their own, and including the without-cause provision the employer is actually trying to rely on.

A defect in the "for cause" language you never intended to use can invalidate the "without cause" language you rely on every time someone leaves.

This matters because the offending language is usually inherited. It sits in a template downloaded years ago, or copied from a previous employer's agreement, and it has been signed by every employee since. The clause looks fine to a non-lawyer. It fails on a technicality that only shows up when it is challenged, which is precisely the moment you need it to work.

The exposure, in numbers

Take a director-level employee, mid-forties, six years of service. With an enforceable clause limiting them to statutory entitlements, you are looking at roughly six weeks of notice plus severance where it applies. Without one, a reasonable notice assessment could land at six to nine months. On a $150,000 salary, that is the difference between roughly $17,000 and somewhere north of $85,000, for the same departure, decided by the wording of a paragraph nobody read at hiring.

Multiply that across a workforce hired on the same template and the aggregate exposure is usually the largest uninsured liability a growing company carries without knowing it.

What to do about it

1. Find out which template you are using, and when it was last reviewed by a lawyer. If the answer is "the one from the last company" or "before 2020," assume it needs work.
2. Have the termination provisions reviewed as a whole, not just the without-cause paragraph. The defect is frequently elsewhere.
3. Fix the template before the next hire. New employees can be hired on a compliant agreement immediately, which stops the problem growing.
4. Take advice before amending existing agreements. Changing the terms of employment for a current employee requires fresh consideration, and getting this wrong can make the new clause unenforceable too.
5. Re-review after significant changes in the law. This area moves. A clause that was sound five years ago may not be today.

This article is general information, not legal advice, and does not create a solicitor-client relationship. The law changes and its application depends on your circumstances. Speak to a lawyer about your situation.