Ambiguous Termination Clauses Will Be Interpreted in Favour of Employees

The law will continue to favour employee protection when termination clauses are in question.

The Ontario Court of Appeal recently affirmed the growing body of case law emphasizing that termination clauses must comply strictly with the Employment Standards Act, 2000 (ESA), and any ambiguity will be interpreted in favour of employees. In De Castro v. Arista Homes Limited, 2025 ONCA 260, the Court confirmed that a termination clause in the employee’s contract was illegal and unenforceable.

Background

The termination provision in question stated:

“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. For the purposes of this Agreement ‘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.”

At trial, the Judge found this provision breached the ESA and was unenforceable. Despite the employer’s argument that the clause could be read consistently with the ESA, the Court rejected this position. The Court of Appeal upheld the lower court’s decision, reinforcing the protections afforded to employees.

Court’s Reasoning

The Court emphasized key principles for interpreting employment contracts:

Employment contracts are not treated like commercial agreements. Courts recognize that employees have less bargaining power and are less familiar with their legal rights under the ESA compared to employers.

The ESA is remedial legislation. Courts must interpret employment contracts in a manner that furthers the protective purpose of the ESA. The goal is to encourage employer compliance and extend protections to as many employees as possible.

Ambiguities must be resolved in favour of the employee. If there are two plausible interpretations of a termination clause, the court must prefer the one that protects the employee’s rights.

In particular, the Court cited Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, and Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), reiterating that employers bear the burden of drafting clear, lawful termination provisions.

Practical Takeaways

This decision is a strong reminder that:

Clarity is critical. Termination provisions must be drafted with precision. Any attempt to contract out of ESA minimums — even indirectly — will render the entire clause void.

Avoid overreaching definitions. Broad or vague definitions of “cause” that extend beyond the ESA standard of “wilful misconduct” are particularly risky.

One error can void the entire clause. If a court finds a violation of the ESA anywhere in the termination provision, it will strike down the whole clause, leaving the employee entitled to common law reasonable notice.

Review your contracts regularly. Given the evolving nature of employment law in Ontario, it is critical to review and update employment agreements frequently to ensure compliance.

The Court of Appeal’s decision in De Castro confirms that the law will continue to favour employee protection when termination clauses are in question. Employers should take great care in drafting contracts — when in doubt, ambiguity will not work in your favour.

Need Help Reviewing or Updating Your Employment Contracts?

Minken Employment Lawyers (Est. 1990) can help ensure your contracts are clear, enforceable, and ESA-compliant.

Contact us today at [email protected] or 905-477-7011 to ensure you are aware of your rights and obligations.

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Please note that this article is for informational purposes only and does not constitute legal advice nor should it be relied on as legal advice or opinion.