Severance and Termination Clauses in Ontario Employment Contracts

When an Ontario employment relationship ends without cause, two very different legal frameworks can potentially determine what the employee is owed. The first is the Employment Standards Act, which sets statutory minimum notice (and, for some employees, separate statutory severance pay). The second is common-law “reasonable notice,” a generally larger entitlement developed through decades of court decisions that applies unless a valid, properly drafted contract limits the employee to the statutory minimums instead.

Understanding the relationship between these two frameworks — and why so many termination clauses that try to rely on the first one end up failing — is central to understanding how severance actually works in Ontario.

Our broader guide to employment contracts in Ontario covers how termination provisions fit within the rest of a typical employment agreement.

For most employees, the gap between these two frameworks only becomes relevant the moment a job actually ends. Up until that point, a termination clause can sit quietly in a contract for years, unnoticed and untested, without either side having much reason to think carefully about whether it would actually hold up. That dynamic is part of why termination clause disputes so often arise only after the relationship has already ended, when the stakes are immediate and the wording suddenly matters a great deal.

The Employment Standards Act sets a minimum notice period (or pay in lieu of notice) for most employees terminated without cause, generally ranging from one week up to a maximum of eight weeks depending on length of service. These figures represent an absolute floor — an employer cannot validly contract to provide less, no matter what wording appears in the employment contract.

Certain employees are excluded from these notice requirements in specific circumstances, such as those genuinely terminated for the Act’s own narrower standard of misconduct, which is generally understood to be a more stringent bar than ordinary performance issues. This distinction between the ESA’s standard for denying notice and the broader common-law idea of “cause” is a frequent source of confusion — and drafting error — in termination clauses.

The ESA minimums also generally require continuation of benefits and any applicable employer pension contributions throughout the statutory notice period, in addition to regular wages. A termination clause that addresses wages during the notice period but stays silent on benefits, or that expressly excludes them, is a common example of the kind of gap that can later be found to fall short of what the Act actually requires.

Statutory severance pay is a distinct entitlement from notice, and it’s available only to employees who meet specific eligibility criteria — generally, five or more years of service with an employer whose payroll meets a specified threshold (or in certain other situations defined by the Act). Where an employee qualifies, severance pay is calculated using its own formula based on length of service and is owed in addition to, not instead of, statutory notice.

Because eligibility depends on factors like the size of the employer’s overall payroll, not every long-service employee automatically qualifies for statutory severance pay, which makes this an area where the specific facts of an employer and employment relationship matter considerably.

It’s also worth noting that statutory severance pay and termination (notice) pay are calculated using different formulas and serve different purposes under the Act, so an eligible, long-service employee whose employment ends without cause can potentially be owed both amounts at once, in addition to whatever further entitlement arises under common law if no valid termination clause applies.

Where no valid, enforceable termination clause limits an employee’s entitlement, Ontario courts apply common-law “reasonable notice” instead of the ESA minimums. This figure is generally assessed using a set of factors developed through case law — commonly including the employee’s length of service, age, position or seniority, and the availability of comparable employment given their skills and experience.

This gap between the two frameworks is exactly why employers generally want a properly drafted termination clause limiting notice to the ESA minimums, and exactly why employees — and the courts — scrutinize whether such a clause is actually enforceable.

A termination clause that limits an employee to ESA minimums is generally enforceable in Ontario, provided it’s drafted carefully and consistently with the Act. The difficulty is that many clauses are drafted in a way that inadvertently falls below the statutory minimum in at least one circumstance — for example, by excluding benefit continuation during the notice period, or by defining “cause” for contractual purposes more broadly than the Act’s own narrower standard for denying statutory notice.

A termination clause with even one such flaw is generally void for that provision — not reduced down to match the statutory minimum, but treated as though it never existed at all. This all-or-nothing consequence is a key reason termination clauses are an area where precise, up-to-date drafting matters so much.

In Waksdale v. Swegon (2020 ONCA), the Ontario Court of Appeal went a step further, holding that where a termination clause has multiple separate parts — commonly a “without cause” provision and a separate “for cause” provision — if any one part is illegal, the entire clause can be struck down, even parts that would have been perfectly lawful standing alone. This means an employer can draft a reasonable, ESA-compliant “without cause” provision, only to have it unravel because a different part of the same clause, dealing with a different termination scenario, didn’t comply with the Act.

When a termination clause is found void, the employee’s entitlement doesn’t disappear — it typically reverts to common-law reasonable notice instead, assessed using the factors described earlier. Given how much larger common-law notice tends to be compared to the ESA minimums, a single drafting flaw in a termination clause can end up costing an employer far more than if no termination clause had been attempted at all, since the clause’s failure doesn’t reduce the employee’s entitlement — it removes the limitation entirely.

This dynamic is part of why termination clauses are frequently the focus of litigation when an employment relationship ends — the stakes of enforceability are often large enough to justify a legal challenge, particularly for longer-service or more senior employees.

Whether reviewing a contract before signing or evaluating entitlements after a job loss, the termination section is generally worth reading closely rather than skimming. Look at how the clause defines notice, whether it addresses benefit continuation during the notice period, and how it treats “cause” compared to the Employment Standards Act’s own standard.

Our hub on agreements in Ontario and our contract review checklist offer further general guidance on reviewing contract terms.

It’s also worth remembering that the enforceability of a termination clause can depend on the specific language used and on how courts have interpreted similar wording, which means the law in this area continues to develop over time. A clause drafted several years ago, even one that seemed reasonable when it was written, isn’t automatically assumed to remain enforceable under more recent decisions.

This article provides general information about how severance and termination provisions commonly work under Ontario law and isn’t legal advice for a specific contract, employer, or termination situation.