Case In Point
The Ontario Court of Appeal Provides Another Caution to Employers Drafting Employment Contracts: Actual Language is Paramount—Not Intent
Date: April 15, 2025
In a recent decision of the Ontario Court of Appeal, the Court upheld the lower court’s decision finding that the termination clause in the employment contract was offside of the Employment Standards Act, 2000 (ESA) and that as a result, the employee was entitled to common law reasonable notice.
This decision is yet another cautionary tale for employers. Words in an employment contract matter. An employer must be precise when drafting an employment contract to ensure that a termination provision does not contravene the ESA, even if that is not the employer’s intent.
Background
Ellen De Castro was employed by Arista Homes (ARISTA) for four years and nine months before she was dismissed on a without cause basis. The employer relied on the termination provision in her employment contract which provided Ms. De Castro with the minimum entitlements upon termination under the ESA. Pursuant to her employment contract, she was provided with four weeks’ salary in lieu of notice.
Ms. De Castro sued, arguing in line with the Court’s reasoning in Waksdale v Swegon North America Inc, 2020 ONCA 391 that since the employment contracts for cause termination provision contravened the ESA, that the entire termination provision must fail. The lower court agreed with her reasoning, and she was awarded eight months’ salary in lieu of notice. The employer appealed the decision.
The central issue on appeal was whether the for-cause termination provision in the employment contract complied with the ESA because, as conceded by the employer, if that clause contravened the ESA, then the termination without cause provision would also fail.
The Court’s Decision
In dismissing the appeal, the Court’s reasoning focused heavily on the words “or” and “shall include” in the for-cause termination clause.
The for-cause termination clause provided:
If you are terminated for Cause or you have been guilty of wilful misconduct, disobedience, breach of Employment Agreement or wilful neglect of duty that is not trivial and has not been condoned by ARISTA, then ARISTA will be under no further obligation to provide you with pay in lieu of reasonable notice or severance pay whether under statute or common law.
Before further defining cause as:
… Cause” shall include your involvement in any act or omission which would in law permit ARISTA to, without notice or payment in lieu of notice, terminate your employment.
The Court of Appeal ultimately found no error in the lower court’s decision, agreeing with the lower court’s interpretation that use of the word “or” as separating the first half of the termination clause from the latter half. This disjunctive language contemplated termination for “Cause” other than for the reasons following the word “or”, including for example, “Breach of the Employment Agreement.” This clause therefore permitted termination for cause in circumstances not permitted by the ESA, which only allows for termination for cause in cases of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.
Additionally, the definition of “Cause” used the words “shall include” which the Court determined were inclusive, not exclusive. This definition suggested a non-exhaustive definition that could encompass circumstances beyond those permitted by the ESA.
Notably, the court reasoned that it is not whether the employer intends for the contract to comply with the ESA, but whether the actual contractual language complies with the law.
Key Takeaways
Courts will be critical of, and scrutinize, the drafting of an employment contract.
This case serves as another reminder to employers that any part of a termination clause must comply with the ESA. Drafting employment contracts does require precision, and the consequences for improper or poor drafting can create significant liability for employers.
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