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February 3, 2025

Last night, Open AI released their Deep Research model. Lawyers should take note.

This model is described as “a specialized capability designed to perform in-depth, multi-step research using data on the public web…[and]…is perfect for people who do intense knowledge work in areas like finance, science, and law[.]”

What follows below is the task I gave it, the clarification it sought before proceeding and the result of its research. You’ll also see a sped-up video of the “work” it did to research, review and write the report. The full 5 minute, real-time and unedited video is available here.

The availability of models like this (yes, there are others and there are more coming) will materially impact the business of law and how clients go about seeking advice. If you need help understanding the implications for your legal practice, or if you want help getting started on these tools, get in touch.

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Me: Ontario’s legal approach to employment agreements has been somewhat muddled since Waksdale. A recent review in the Dufault/Ignace matter represented an opportunity to address some gaps, but the ONCA did not seize the opportunity. Research, review and reconcile the issues in a manner that would assist employers seeking certainty in their approach to using employment agreements.

Open AI: To ensure a thorough analysis, could you clarify a few key aspects?

  • Scope: Are you looking for a detailed legal analysis of Waksdale and Dufault/Ignace, or a practical guide for employers on drafting enforceable employment agreements?
  • Focus: Should the research emphasize termination clauses, severability, or broader employment contract enforceability issues?
  • Jurisdiction: Should the research focus solely on Ontario law, or would you like comparisons to other provinces?
  • Format: Would you prefer a formal legal report, a summary, or a best-practices guide?

Once I have these details, I can provide a research-based response that directly meets your needs.

Me: enforceable agreements in ontario presented as report with summary and guidance doc

Understood. I will conduct research on enforceable employment agreements in Ontario, focusing on the impact of Waksdale and Dufault/Ignace. The report will include a summary of the legal landscape, key considerations for employers, and guidance on drafting legally sound employment agreements. I will notify you once the research is ready for review.

Summary: In Ontario, employment contract termination clauses must strictly comply with the Employment Standards Act, 2000 (ESA) to be enforceable. The Ontario Court of Appeal’s landmark decision in Waksdale v. Swegon (2020) confirmed that if any part of a termination provision violates ESA minimum standards (for example, an overly broad “for cause” clause), then all termination clauses in the contract are void and cannot be saved by a severability clause (Waksdale v. Swegon North America Inc., 2020 ONCA 391 – Ontario Trial Lawyers Association Blog) The recent Dufault v. Ignace (Township) (2024 ONCA 915) decision reaffirmed this principle and invalidated a termination clause for the same reason (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) However, the Court of Appeal in Dufault left open certain questions – notably whether wording like “at any time” or “sole discretion” in without-cause termination clauses, which could permit firing employees during ESA-protected situations, independently renders a clause void (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) Ontario employers are advised to draft termination provisions with extreme care: ensure all ESA entitlements (notice, benefits, vacation pay, and any applicable severance pay) are provided for, avoid any language contracting out of ESA rights (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) and refrain from broad phrases that conflict with statutory protections (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) Regularly reviewing and updating employment agreements to reflect the latest case law (like Waksdale and Dufault) is a critical best practice (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (At Any Time, A Termination Clause May be Found Unenforceable – Fogler, Rubinoff LLP) Below is a detailed report on the current legal landscape, the implications of the Waksdale and Dufault decisions, and practical guidance for drafting enforceable Ontario employment contracts.

Ontario’s Legal Landscape: Termination Clauses Post-Waksdale

Strict Compliance with ESA Requirements: Ontario law has long prohibited contracting out of the minimum standards of the ESA in employment agreements. A contract that provides an employee with less than their ESA entitlements upon termination is void to that extent, and the employee will be entitled to common law notice of termination (which is usually much higher) (Waksdale v. Swegon North America Inc., 2020 ONCA 391 – Ontario Trial Lawyers Association Blog) The Supreme Court of Canada in Machtinger (1992) established that termination clauses violating the ESA are not enforceable, a principle reaffirmed in subsequent cases. In Wood v. Fred Deeley Imports Ltd. (2017 ONCA), for example, the Court of Appeal struck down a termination clause that omitted certain ESA entitlements (like benefits and vacation pay during the notice period), even though the employer actually provided them – the wording of the clause itself failed to guarantee those minimum rights (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) This strict scrutiny means any contractual term that potentially deprives an employee of an ESA right can invalidate the clause (Court of Appeal Confirms Unenforceability of Termination Clauses in Dufault Appeal – Mathews Dinsdale & Clark LLP) (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault)

The Waksdale Decision (2020): Waksdale v. Swegon North America Inc. was a watershed Ontario Court of Appeal ruling that significantly tightened the enforceability of termination provisions. In Waksdale, the employment contract had a without-cause termination clause that on its face complied with ESA minima, but it also contained a separate “for cause” clause that breached the ESA (by denying notice for terminations in circumstances broader than the ESA’s narrow definition of wilful misconduct) (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) The employer argued that the illegal portion (the for-cause clause) could be severed, leaving the rest of the agreement enforceable. The Court of Appeal emphatically rejected this argument. It held that employment contracts must be interpreted as a whole, not piecemeal: if any part of the termination clause violates the ESA’s minimum standards, then all termination provisions in the agreement are invalid (Waksdale v. Swegon North America Inc., 2020 ONCA 391 – Ontario Trial Lawyers Association Blog) An express severability clause cannot save a termination provision that is void by statute (Waksdale v. Swegon North America Inc., 2020 ONCA 391 – Ontario Trial Lawyers Association Blog) In the Court’s view, allowing severability in this context would undermine the ESA’s protective purpose and remove the incentive for employers to draft lawful termination clauses from the start (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) Thus, after Waksdale, a single offending clause (such as an overly broad just-cause definition) taints the entire termination section of the contract (Waksdale v. Swegon North America Inc., 2020 ONCA 391 – Ontario Trial Lawyers Association Blog) The employee in Waksdale was consequently entitled to common law notice because the contractual limit on notice could not stand (Waksdale v. Swegon North America Inc., 2020 ONCA 391 – Ontario Trial Lawyers Association Blog)

Severability and “Reading as a Whole”: Waksdale made clear that a general severability clause in an employment contract will not rescue an illegal termination term. The Court cited its earlier decision in North v. Metaswitch Networks (2017 ONCA 790) for the principle that severability cannot cure a clause that the law (ESA) renders void ab initio (Waksdale v. Swegon North America Inc., 2020 ONCA 391 – Ontario Trial Lawyers Association Blog) Moreover, the Court stated it is “irrelevant whether the termination provisions are found in one place in the agreement or separated” – an illegal clause is not enforceable simply because it appears distinct from a compliant clause (Waksdale v. Swegon North America Inc., 2020 ONCA 391 – Ontario Trial Lawyers Association Blog) In practical terms, Ontario employers cannot rely on severability boilerplate to fix a termination clause that violates the ESA; the focus is on the contract’s substantive compliance with employment standards at the time of signing (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) Post-Waksdale, lower courts have consistently struck down termination provisions for even technical ESA breaches or ambiguities, cementing an employee-friendly approach. Indeed, it has become “unsurprising” for Ontario courts to find termination clauses unenforceable – one 2024 survey noted that only one reported case since Waksdale upheld a termination clause, underscoring how rare a compliant clause has become under this strict regime (Court of Appeal Confirms Unenforceability of Termination Clauses in Dufault Appeal – Mathews Dinsdale & Clark LLP)

The Dufault v. Ignace Decision: ONCA’s Handling and Legal Gaps

Background of Dufault v. Ignace: The Dufault case (2024) tested Waksdale’s principles on a new contract and raised additional issues. Ms. Dufault was hired on a two-year fixed-term contract with the Township of Ignace (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) After only a few months, the Township terminated her employment without cause, relying on the contract’s early termination clause. The employer paid Ms. Dufault only her ESA minimum termination pay (two weeks’ pay) for dismissal without cause (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) Ms. Dufault sued for wrongful dismissal, arguing that the contract’s termination provisions were unenforceable and that, since she had a fixed-term agreement with no valid termination clause, she was entitled to damages equal to the salary for the balance of the term (about 101 weeks remaining) (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) She brought a motion for summary judgment to determine the enforceability of the termination clause upfront.

Termination Clause at Issue: The contract contained two key termination provisions similar to those in Waksdale: one addressing termination “for cause” and another addressing termination “without cause.” The for-cause clause allowed the Township to terminate without notice or pay for “cause,” which was defined to include failures in performance and acts of negligence or disobedience (not necessarily wilful) (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) The without-cause clause gave the Township discretion to terminate at any time without cause if it provided notice or pay in lieu as specified – in this case, two weeks’ base salary per year of service, capped at 4 months, or the ESA minimum, whichever was greater, plus benefit continuation for the notice period (with some limits on disability coverage) (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) Notably, the without-cause clause stated the employer could terminate “in its sole discretion … at any time” (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Filion Wakely Thorup Angeletti – Dufault v. Ignace (Township): The “Sole Discretion… at Any Time” Saga Continues – Labour & Employment Law Insights )

Superior Court Ruling: The Ontario Superior Court (Pierce J.) found both termination clauses invalid for multiple reasons. First, the for-cause provision was illegal because it purported to deny all notice or termination pay whenever the employer had “cause,” without restricting cause to the ESA’s high threshold of wilful misconduct (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) Under the ESA (O. Reg. 288/01, s. 2(1)3), only wilful misconduct or wilful neglect of duty that is not trivial and not condoned permits an employer to withhold statutory termination pay (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) The contract’s broader definition of cause (encompassing non-wilful performance issues) meant an employee could lose ESA entitlements for conduct that does not meet the statutory standard – a direct violation of the ESA (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) Citing Waksdale, the court held that this illegal for-cause clause alone would void all the termination provisions (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault)

However, the judge went further, examining the without-cause clause for compliance. In doing so, she “broke new legal ground” by identifying additional ESA problems beyond the classic just-cause issue (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) The court found two distinct flaws in the without-cause provision:

Having found three ESA contraventions – (1) the for-cause clause, (2) the base-salary limitation, and (3) the “sole discretion… at any time” phrase – Justice Pierce ruled the entire termination section void. In line with Waksdale, any one of these violations would be sufficient to nullify the termination provisions (Court of Appeal Confirms Unenforceability of Termination Clauses in Dufault Appeal – Mathews Dinsdale & Clark LLP) (Court of Appeal Confirms Unenforceability of Termination Clauses in Dufault Appeal – Mathews Dinsdale & Clark LLP) As a result, Ms. Dufault’s termination was governed not by the contract but by common law principles. Since she was on a fixed-term agreement with no enforceable early-exit clause, the court awarded her damages equal to the unexpired term of the contract – 101 weeks’ pay (approximately $157,000), minus the small amount already paid on termination (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Court of Appeal Confirms Unenforceability of Termination Clauses in Dufault Appeal – Mathews Dinsdale & Clark LLP) This outcome highlights the high stakes of unenforceable clauses, especially in fixed-term contracts where an employer can be on the hook for the full remaining salary (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault)

ONCA Appeal – Reaffirming Waksdale: The Township of Ignace appealed, seeking to overturn the voiding of the termination clause. The employer urged the Court of Appeal (ONCA) to find that both the for-cause and without-cause provisions actually complied with the ESA, or alternatively to sever any offending part (the for-cause clause) and uphold the rest (Filion Wakely Thorup Angeletti – Dufault v. Ignace (Township): The “Sole Discretion… at Any Time” Saga Continues – Labour & Employment Law Insights ) They even requested a five-judge panel of the ONCA to reconsider the Waksdale precedent entirely (Filion Wakely Thorup Angeletti – Dufault v. Ignace (Township): The “Sole Discretion… at Any Time” Saga Continues – Labour & Employment Law Insights ) The Court of Appeal, however, dismissed the appeal in a brief endorsement, squarely following Waksdale (Filion Wakely Thorup Angeletti – Dufault v. Ignace (Township): The “Sole Discretion… at Any Time” Saga Continues – Labour & Employment Law Insights ) (Court of Appeal Confirms Unenforceability of Termination Clauses in Dufault Appeal – Mathews Dinsdale & Clark LLP) It was a three-judge panel, which noted it was bound by Waksdale and declined to convene a larger panel (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Court of Appeal Confirms Unenforceability of Termination Clauses in Dufault Appeal – Mathews Dinsdale & Clark LLP) The ONCA agreed that the for-cause clause in Dufault’s contract violated the ESA by defining “cause” more broadly than the ESA’s wilful misconduct standard (specifically pointing to the inclusion of “failure to perform duties” as an example of an impermissible ground) (Filion Wakely Thorup Angeletti – Dufault v. Ignace (Township): The “Sole Discretion… at Any Time” Saga Continues – Labour & Employment Law Insights ) Because that single aspect was enough to invalidate the termination clause, the court applied Waksdale to hold that all termination provisions in the contract were void (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) Ms. Dufault was therefore rightly entitled to the balance of her fixed term.

Importantly, the Court of Appeal refused to rule on the other issues raised by the without-cause clause. The decision states that, since the illegal for-cause provision already decided the outcome, it was “not necessary” to consider whether the “without cause” clause’s wording (base salary only, or “sole discretion… at any time”) complied with the ESA (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) The ONCA pointed out that those questions should be left to a case in which they would affect the result (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) In other words, the appellate court deliberately left those questions open. It did not endorse or overturn the lower court’s findings on those points – it simply stayed silent. As a result, the law remains unsettled on whether a without-cause clause, by itself, is void for using “at any time” language or omitting mention of certain wage components (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) The Superior Court’s decision suggests such clauses are problematic, but there is no ONCA authority directly on those specifics yet (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault)

Unresolved Legal Gaps: The Dufault appeal outcome has left some confusion in Ontario employment law. Observers had hoped the ONCA would provide guidance on “without cause” clauses that include phrases like “at any time” or “for any reason” (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) Many existing contracts use this kind of wording. Since the Court of Appeal did “not decide the issue or provide any guidance whatsoever” on that question (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) uncertainty persists. Employers and employees are essentially awaiting a future appellate case to clarify how far courts will go in finding “technical and theoretical” breaches of the ESA in without-cause clauses (in the absence of a faulty just-cause clause) (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) The kinds of questions that remain include: Would a termination clause that is otherwise ESA-compliant be invalidated solely because it says termination can occur “at any time”? How literally will courts read such language against the backdrop of statutory leave protections? Until the Court of Appeal directly addresses these clauses, litigation will likely continue as parties test the limits (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault)

It’s worth noting that the Township of Ignace has sought leave to appeal to the Supreme Court of Canada (Filion Wakely Thorup Angeletti – Dufault v. Ignace (Township): The “Sole Discretion… at Any Time” Saga Continues – Labour & Employment Law Insights ) (Filion Wakely Thorup Angeletti – Dufault v. Ignace (Township): The “Sole Discretion… at Any Time” Saga Continues – Labour & Employment Law Insights ) There is also a contrasting decision from the BC Court of Appeal (Egan v. Harbour Air, 2023 BCCA) that upheld a similarly phrased termination clause (“may terminate at any time so long as the statutory notice is given”) (Filion Wakely Thorup Angeletti – Dufault v. Ignace (Township): The “Sole Discretion… at Any Time” Saga Continues – Labour & Employment Law Insights ) The divergence between Ontario’s approach (Waksdale/Dufault) and BC’s approach (Egan) increases the likelihood the Supreme Court may weigh in on these issues (Filion Wakely Thorup Angeletti – Dufault v. Ignace (Township): The “Sole Discretion… at Any Time” Saga Continues – Labour & Employment Law Insights ) For now, however, Ontario employers must operate under the very employee-protective regime established by Waksdale and its progeny: any hint of contracting out of ESA minimum standards in a termination clause can be fatal to its enforceability (Waksdale v. Swegon North America Inc., 2020 ONCA 391 – Ontario Trial Lawyers Association Blog)

Practical Guidance for Employers: Drafting Enforceable Agreements

In light of the above, employers in Ontario should take a proactive and meticulous approach to drafting employment agreements. Below are key guidance points to ensure agreements – especially termination provisions – are enforceable:

  • Ensure Explicit ESA Compliance: Termination clauses must explicitly provide at least the minimum ESA entitlements in all scenarios. This means including all forms of compensation required by the ESA during the notice period. Do not limit termination pay to base salary if the employee’s compensation includes other components. For instance, include language that ensures the continuation of benefits, accrual of vacation pay, and payment of any earned bonus or commissions through the notice period, as applicable (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) If the ESA mandates severance pay (for employers with 2.5M+ payroll and 5+ years service), the contract should not ignore this – it should either explicitly mention statutory severance or at least state the employee will receive all entitlements required by the ESA. A clause that offers “2 weeks’ pay per year of service or ESA minimum, whichever is greater” is helpful, but it must still account for all ESA components (e.g. “wages” includes more than salary) (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada)
  • Avoid Broad “For Cause” Definitions: Be very careful with just-cause termination clauses. The safest route may be to omit a “for cause” termination clause entirely, since the ESA and common law already permit termination without notice for true wilful misconduct. If you do include a just-cause clause, it must be narrowly tailored to the ESA standard. For example, limit “cause” to the definition set out in the ESA regulations (wilful misconduct, disobedience or wilful neglect of duty that is not trivial and not condoned) (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) Alternatively, include a proviso that if the employee’s conduct does not meet the ESA standard for withholding notice, then they will receive at least the ESA minimum notice and severance. In essence, the contract should never allow a scenario where an employee who is entitled to ESA notice is denied it (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) Any ambiguity on this point will be construed against the employer. Phrasing such as “the Employer may terminate for just cause (as defined by the ESA, if applicable, otherwise the employee will receive minimum ESA entitlements)” can provide clarity. The goal is to avoid the situation in Waksdale/Dufault where a generic “for cause = no pay” clause invalidates your whole agreement (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault)
  • Phrasing of Without-Cause Clauses: Do not include language that implies termination rights beyond what the law permits. Phrases like “the employer may terminate at any time in its sole discretion” should be removed or qualified. While such language is often intended to reinforce that no cause is needed to terminate on notice, it can be read as purporting to allow illegal terminations (e.g. during protected leaves). To avoid this, you can simply state: “The Company may terminate your employment without cause upon providing you with the notice and/or pay in lieu required by [the contract/ESA].” If you feel the need to mention timing, add a caveat like “at any time in accordance with the ESA.” In general, any terminology suggesting the employer has an unrestricted right to dismiss should be tempered or eliminated (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) It is better to be a bit verbose in clarifying compliance than to use a shorthand that a court might later find problematic.
  • Include an ESA “Failsafe” Clause: Many employment lawyers now include a clause stating that no provision of the contract will contravene the ESA, and that if any ambiguity exists, the interpretation most favorable to the employee (or that which complies with the ESA) shall prevail. For example: “It is the intent of the parties that the termination provisions comply with the ESA. In the event of any inconsistency between this agreement and the ESA, the ESA minimum standards shall apply.” While this kind of clause is not a guarantee – courts may still strike an overtly illegal term rather than rewrite it – it signals the intent to comply and could help save a clause that is only slightly offside or unclear. At the very least, it reinforces that the employee will not get less than the ESA requires, which is the baseline for enforceability.
  • Draft in Plain, Unambiguous Language: Ambiguity is interpreted against the drafter (the employer). Ensure the contract language is clear about the parties’ rights and obligations. If using formulas (e.g. a certain number of weeks per year of service), double-check that it yields at least ESA minima in all possible cases. Avoid convoluted language that could be misread as less than ESA. Clarity not only helps with enforceability, but also makes it more likely the employee will understand and agree to the terms.
  • Address All Termination Scenarios: A comprehensive termination section might cover without cause termination, with cause termination, resignation, and end of fixed term (if applicable). For each, ensure nothing violates ESA requirements. For instance, if you have a probationary period clause allowing termination with no notice, remember that after 3 months of employment, the ESA requires at least 1 week notice – so any probation clause longer than 3 months must give ESA notice or be void. Similarly, if your contract is fixed-term, include a clause allowing early termination with a defined notice/pay (that meets ESA) to avoid owing the remainder of the term (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) Without an early-exit clause, a fixed term employee released early can claim the entire balance of contract as damages (as in Dufault).

Best Practices for Structuring Employment Contracts to Mitigate Risk

Beyond the specific drafting of termination provisions, employers should take a strategic approach to their employment contracts as a whole. Here are best practices to structure agreements in a way that mitigates legal risks:

  • Regular Review and Updates: Treat employment contracts as living documents. Given the rapid developments in case law (e.g., Waksdale in 2020, Dufault in 2024, and potentially more to come), what was enforceable a few years ago may not be today (Court of Appeal Confirms Unenforceability of Termination Clauses in Dufault Appeal – Mathews Dinsdale & Clark LLP) It is recommended that employers review and update their employment agreement templates at least annually (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (At Any Time, A Termination Clause May be Found Unenforceable – Fogler, Rubinoff LLP) An annual audit of contract terms – especially termination clauses – by legal counsel can catch problematic language and incorporate the latest “safe” wording. This practice ensures new hires sign compliant agreements, and allows the organization to rollout updates (with appropriate consideration) for existing employees if necessary.
  • Legal Counsel Involvement: Engage experienced employment lawyers when drafting or revising contracts. Small nuances in wording can determine whether a clause stands or falls in court. Professional advice is invaluable in ensuring the agreement is both legally sound and tailored to the organization’s needs (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) Counsel can also help balance business objectives with compliance – for example, structuring a termination formula that provides something above the bare minimum ESA (to be attractive to hires), while still protecting the employer from excessive notice obligations.
  • Use Clear Headings and Separate Clauses: Organize the contract with clear headings (e.g., “Termination,” “Compensation,” “Duties”) and separate sub-clauses. While courts will read the termination provisions as a whole, clarity in structure can still aid understanding and enforceability. For instance, keep the “just cause termination” clause distinct from “without cause termination” – this makes it easier to ensure each is compliant and can be individually reviewed against ESA standards. Avoid burying termination terms in obscure places. Transparent structuring also helps demonstrate that the employee was given clear notice of the terms at the time of signing, which is important for enforceability.
  • Severability Clause (Use Cautiously): Continue to include a standard severability clause in the contract – it can be useful to salvage other portions of the agreement if one part is struck down. However, do not rely on severability to save a non-compliant termination clause (Waksdale v. Swegon North America Inc., 2020 ONCA 391 – Ontario Trial Lawyers Association Blog) As discussed, Ontario courts will not sever an illegal part of a termination clause to enforce the rest (Waksdale v. Swegon North America Inc., 2020 ONCA 391 – Ontario Trial Lawyers Association Blog) The presence of a severability clause won’t cure an ESA breach. Its main value is to ensure that if, say, a non-compete clause or some other provision is void, the remainder of the contract (including the termination clause, if valid) can survive. In sum, include severability for general protection, but aim to draft every individual clause – especially termination terms – to be stand-alone compliant.
  • Consider Separate Contracts or Amendments for Promotions: Another risk-mitigation strategy is to update contract terms when employees are promoted or when laws change. When an employee moves into a new role, it’s an opportunity to have them sign a fresh agreement (with proper consideration, such as a raise or bonus) that includes the most up-to-date clause language. This way, long-service employees aren’t working under outdated contracts. It’s also prudent to communicate any contract changes clearly and obtain written agreement.
  • Document the Intent to Comply: As noted, adding a clause that explicitly states the intent to comply with the ESA can be a safety net. While not foolproof, it may help a court read down (rather than void) a clause that is borderline. At a minimum, it shows good faith. Coupled with proper drafting, this can mitigate the chance of an entire agreement being tossed for a technical violation.
  • Be Cautious with Fixed-Term Contracts: Fixed-term employment contracts carry unique risk if the termination provisions are flawed. As Dufault illustrated, an unenforceable termination clause in a fixed-term contract can require the employer to pay out the rest of the term (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) which could be a massive liability. To mitigate this, either avoid long fixed terms or always include an early termination clause that is ironclad under the ESA. Another approach is to use a series of shorter renewable terms or include a termination notice within the fixed term (though these have their own complexities). Always weigh the necessity of a fixed term versus an indefinite hire – unless a fixed term is truly needed (e.g., for a project or a leave replacement), an indefinite contract with a well-drafted termination clause might pose less risk.
  • Train HR on Contract Execution: Finally, ensure that those issuing and explaining employment contracts (HR personnel, managers) understand these terms as well. Inadvertent verbal statements that contradict the contract or a failure to provide the contract before the employee resigns a former job could create additional legal issues (like inducement claims). It’s best practice to present the contract well before the start date and give the candidate a chance to seek independent advice. A clearly structured, legally compliant contract signed with full understanding is the best defense to future challenges.

Conclusion: Ontario’s current legal landscape demands vigilance from employers in drafting and maintaining employment agreements. The Waksdale decision set a high bar for enforceability of termination clauses, and Dufault confirms that even minor drafting missteps or overly broad language can void an employer’s intended protections (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada) Although some fine points await further appellate clarification, the direction is clear – courts prioritize employees’ ESA rights and will strike down contract terms that conflict with those rights, even hypothetically (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) (Worklaw® Network – Ontario: ONCA Does not Fully Address Dufault) Employers should therefore invest time and resources in proactive contract design. By following the guidance and best practices outlined above – comprehensive compliance with ESA standards, precise and cautious wording, and regular legal review – organizations can significantly mitigate the risk of unenforceable agreements and the costly payouts that follow. In an era of heightened scrutiny of employment contracts, careful drafting is not just advisable, it’s essential (Ontario, Canada Court of Appeal Agrees “For Cause” Termination Provision Was Unenforceable Because it Did not Comply with ESA’s Minimum Standards | Littler Mendelson P.C.) (Employers: Are Your Employment Agreements Enforceable? The Court Of Appeal Upholds Dufault – Employee Rights/ Labour Relations – Canada)