Termination Clauses in Employment Contracts (Ontario)

A termination clause is a provision in an employment contract that attempts to limit an employee’s rights if their job ends.

In Ontario, termination clauses are common — and frequently unenforceable. Even when a clause looks clear on paper, it may not comply with Ontario employment law.

What Is a Termination Clause in an Employment Contract?

Termination clauses are the part of employment contracts in Ontario that set out what an employee will receive if their employment is terminated without cause.

Most termination clauses attempt to:

• Limit notice or pay in lieu of notice
• Restrict severance pay
• Replace common law entitlements with minimum standards

What Can a Termination Clause Do?

If valid, a termination clause may limit an employee’s entitlements when their job ends.

Employers often use termination clauses to:

• Cap notice or severance at statutory minimums
• Exclude common law severance
• Define termination rights in advance

However, a termination clause does not automatically control what an employee is entitled to. The clause must meet strict legal requirements under Ontario law.

Are Termination Clauses Enforceable in Ontario?

Not always.

In Ontario, termination clauses must comply with the Employment Standards Act (ESA). Courts have repeatedly ruled that a termination clause is unenforceable if it:

• Provides less than ESA minimum standards
• Could potentially violate the ESA at any point
• Uses unclear, misleading, or contradictory language

Even a technical or hypothetical violation of the ESA can render a termination clause invalid.

Common Problems With Termination Clauses in Ontario

Many termination clauses fail because of how they are drafted.

Common issues include:

• Limiting notice or severance below ESA minimums
• Failing to preserve benefits during the notice period
• Ambiguous language that creates uncertainty
• “Saving” clauses that attempt to fix illegal provisions but do not actually do so
• Outdated wording that no longer reflects current Ontario law

Because Ontario courts interpret employment contracts in favour of employees, drafting errors often work against employers

How Termination Clauses Affect Severance Pay

Termination clauses are often used to justify reduced severance offers. Understanding the difference between statutory severance and severance pay in Ontario is critical before accepting any package.

However:

• Many employees are owed far more severance than their contract states
• An invalid termination clause can’t be relied on to limit severance
• Common law severance may apply instead – as much as 24 months’ pay

When Should a Termination Clause Be Reviewed?

A termination clause should be reviewed in several key situations, including:

• Before signing a new employment contract
• When being asked to sign a new agreement during employment
• After termination, before accepting a severance offer

Get Advice About a Termination Clause in Ontario

Termination clauses in Ontario employment contracts are often invalid — even when they appear carefully drafted.

Before assuming a termination clause limits your severance, it’s important to understand how Ontario employment law applies to your situation.

Speaking with an employment contract lawyer in Ontario, at Samfiru Tumarkin LLP, can help clarify whether a termination clause is enforceable and what the law actually requires your employer to provide.