The Superior Court of Justice recently released two decisions which look at the enforceability of termination clauses within employment contracts: Li v. Wayfair, 2025 ONSC 2959 (“Li”) and Chan v. NYX Capital Corp., 2025 ONSC 4561 (“Chan”). While both cases involve similarly worded termination clauses, the Court arrived at different conclusions about their enforceability. In the more recent case, Chan, the Court found the termination clause unenforceable and awarded the employee greater severance payments than the termination clause purported to provide. These cases highlight the need for employers to remain up-to-date with case law developments to ensure the termination language in their employment contracts remain legally enforceable.
Background
In both Li and Chan, the employees had signed employment contracts containing termination clauses which attempted to limit their termination entitlements to the minimum standards under the Ontario Employment Standards Act, 2000 (“ESA”). The Court came to different conclusions surrounding its enforceability based on legally nuanced reasons.
i. Chan v. NYX Capital Corp., 2025 ONSC 4561
In Chan, the termination clause stated:
“The Company may terminate your employment at any time without any obligation to you on account of notice or pay in lieu of notice, severance pay, or other obligation, other than accrued amounts owed to the date of termination.”
The employer relied on this language to provide the employee with their ESA minimum entitlements upon termination. The employee sued the employer for more severance, arguing the termination clause was unenforceable and he was entitled to more under the common law. The Court agreed with the employee and found that the language used in the termination provision was invalid because the reference to termination “at any time” allowed the employer to terminate in circumstances that were prohibited under the ESA. Under the ESA, termination in reprisal for attempting to exercise a right under the ESA, and upon an employee’s return from a statutory leave, are prohibited. Therefore, the termination provision contravened the ESA and was therefore unenforceable.1
Furthermore, the Court found the termination clause void because it attempted to terminate Chan without notice or severance in circumstances where he would be so entitled under the ESA. Under the ESA, the employer can only terminate without notice or pay in lieu of notice if the employee is guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer. The termination clause did not contain this limitation. The Court therefore considered this an attempt to contract out of the ESA, which rendered the contract void. Absent an enforceable contract, Chan was entitled to severance under the common law and awarded a three months’ notice period.
ii. Li v. Wayfair, 2025 ONSC 2959
In Li, the employer dismissed the employee and paid the ESA minimum termination payments, relying on the termination clause. The employee sued the employer for greater severance, arguing the termination clause was unenforceable. The termination clause stated,
“The Company may terminate your employment at any time for Cause without notice, pay in lieu of notice, severance, benefits continuance or other compensation or damages of any kind […] unless expressly required by the ESA in which case only the minimum statutory entitlements will be provided.”
Cause was defined as,
“Any willful misconduct, disobedience, or willful neglect of duty that is not trivial and had not been condoned by the company and that constitutes “cause” under the ESA”.
In the lawsuit, the employee argued the termination provision violated the ESA because its definition of “Cause” failed to meet the standard under the ESA and it allowed for termination “at any time” when the employer’s right to dismiss an employee is not absolute under the ESA. Absent an enforceable termination clause, the employee was entitled to greater severance under the common law.
The Court held that the termination clause complied with the ESA because it clearly and repeatedly indicated payments will be made “as required by” or “under the ESA.” The Court dismissed the employee’s claim for more severance under the common law.
Key Takeaways
The Court came to different conclusions in Li and Chan despite the termination clauses at issue being similarly worded. The case law surrounding termination clauses continues to evolve and employers would be well-advised to seek legal advice when drafting their employment contracts to ensure they are up-to-date with legal developments at all times.
If you’re an employer looking for employment law advice, contact Turnpenney Milne LLP.
Written by: Thaniya Jeyachandra
1 This rationale followed the decision of Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”), where the Court found that employment contracts which permit employers to terminate “at any time” are unenforceable for violating the ESA.