Wrongful Dismissal Claims in Ontario
In recent years, Ontario courts have taken heavily scrutinized stance on termination clauses in employment contracts. As experienced employment lawyers helping provide employer defence for wrongful dismissal claims know from experience, judges have frequently ruled in favour of employees, invalidating clauses that limit their severance rights, especially when the clauses are not crystal clear or fall short of Ontario’s Employment Standards Act, 2000 (“ESA”).
However, a recent Ontario court decision is offering some much-needed hope for employers. This ruling confirms that, when drafted correctly, a termination clause can be enforceable and limit an employee’s entitlement to common law notice. This is a big deal for employers looking to manage risk and control severance costs. If you’re an employer in Ontario or you’re working with a Toronto employment lawyer, it is a case you’ll want to pay attention to.
Why Termination Clauses Matter in Employment Contracts
Every employee in Ontario is entitled to notice of termination or pay in lieu, and in some cases, severance pay. These entitlements can be either:
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Statutory minimum entitlements set out by the ESA, including notice of termination (or termination pay), benefits continuation and severance pay.
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Common law: Based on court decisions, which typically provide much more generous notice periods, calculated based on an employee’s age, years of service, job title, responsibilities and compensation, and availability of similar employment.
Employers often try to limit payouts by including specific language in employment contracts that restrict termination entitlements to only ESA minimums. But here’s the catch: if the termination clause is not written properly, the entire clause may be thrown out, giving the employee full access to common law entitlements.
This is where having a solid employment contract lawyer becomes essential.
A Complex Legal Landscape for Employers
Over the past few years, there’s been noticeable friction between trial courts and appeal courts when it comes to enforcing these employment contract termination clauses.
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Appellate courts tend to support employers’ rights to limit notice entitlements—as long as contracts are clear and compliant with the ESA.
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Trial judges, on the other hand, often err on the side of employee protection. They are not afraid to closely scrutinize every word and may invalidate a clause over seemingly small issues, all in the interest of safeguarding employee rights. Why? Because it is well known that, unlike in commercial transactions, employees asked to sign an employment contract are often negotiating from a position of weakness or unequal bargaining power. As the court recently said in one case:
“The importance of employment and the vulnerability of employees when their employment is terminated give rise to a number of considerations relevant to the interpretation and enforceability of a termination clause:
When employment agreements are made, usually employees have less bargaining power than employers. Employees [page489] rarely have enough information or leverage to bargain with employers on an equal footing.
Many employees are likely unfamiliar with the employment standards in the ESA and the obligations the statute imposes on employers. These employees may not seek to challenge unlawful termination clauses.”
This disconnect has made employers unsure whether it is even worth including these clauses at all. Many are asking their Toronto employment lawyer: “Is it worth the risk?”
The Answer: Yes, it is still worth including termination clauses. In fact, it is even more important for employers looking to minimize their liability to employees, especially when it comes to termination of employment.
When written clearly and in full compliance with employment standards, courts have upheld them.
A recent example proves this point—and may shift the balance back in favour of employers.
A Closer Look: Bertsch v. Datastealth Inc.
In a 2024 decision from the Ontario Superior Court of Justice, employer Datastealth Inc. came out on top in a wrongful dismissal lawsuit.
The Background:
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Gavin Bertsch was employed for just under 9 months.
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His employment contract limited his termination entitlements (or severance package) to ESA minimums.
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Upon termination, he received one week’s notice (which matched ESA requirements).
But Bertsch was not happy with that severance package offered by his employer. He therefore sued for wrongful dismissal, claiming the contract was invalid, and demanded 12 months’ pay—about $300,000—based on common law notice.
Employee’s Argument: The Contract Was Ambiguous
Bertsch, with the help of a wrongful dismissal lawyer, argued that the termination clause was unclear and failed to align with ESA standards. He claimed the contract allowed the company to fire him without notice, even in cases that did not meet the ESA‘s definition of “just cause.” That, he argued, made the contract illegal and void.
This argument was not new. It echoes the strategy used successfully in past cases—like the well-known Waksdale v. Swegon decision, where courts ruled against the employer because of similar issues.
Employer Defence: The Contract Was Clear and Legal
Datastealth, working with a knowledgeable employment contract lawyer, fought back by filing a motion to dismiss the claim. The company maintained that the contract was easy to understand and fully compliant with the ESA and its regulations.
The main question before the court: Was the termination clause valid under the law?
The Court’s Ruling: A Win for the Employer
The court ruled in favour of the employer, confirming that:
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The termination clause was clear, unambiguous, and did not violate the ESA.
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The contract explicitly acknowledged that ESA minimums would apply.
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The clause did not improperly expand the meaning of “cause” for termination.
Because the clause complied with the law and clearly communicated the limits of entitlement, the court upheld it.
As a result, the claim for $300,000 in common law notice was struck down, and the employer’s termination clause was deemed valid and enforceable.
Key Takeaways for Employers
This decision is a huge relief for companies across Ontario. Here’s what it means if you are working with a severance package lawyer in Toronto or trying to draft employment contracts that hold up in court:
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Clarity is Crucial
Ambiguous or unclear language can sink a termination clause. Every word must be easy to interpret and aligned with the ESA. -
Compliance with the ESA is Non-Negotiable
You cannot contract out of the minimum standards of Ontario’s employment laws. Doing so will void the entire clause. -
Failsafe Clauses Can Help
The court noted that a “failsafe clause”—which promises to provide the employee with at least ESA minimums upon termination of employment—can reinforce a contract’s legality. Unlike a typical “severability clause,” it shows a clear intent to follow the law. -
Don’t Be Discouraged by Past Decisions
While some trial decisions have gone against employers, this ruling confirms that with careful drafting, termination clauses can and do work. -
Legal Advice is Essential
Whether you’re hiring, updating contracts, or handling terminations, working with an experienced Toronto employment lawyer ensures your contracts are enforceable and compliant.
For many employers, termination of employment is a difficult and confusing time, especially when it comes to drafting severance packages. Therefore, in a wrongful termination of employment, it is important for employers to consult with an experienced Ontario employment lawyer for a severance package review to understand the impact of wrongful dismissal on pension plans. If you are an employer or employee needing to speak with an experienced Ontario wrongful dismissal lawyer to discuss your options and next steps on how to deal with workplace issues, call Bune Law, employment law firm in Toronto. You will review and get guidance on your severance package before you agree to sign any termination documents, and help ensure that your severance package is fair and reasonable.