Drafting Enforceable Termination Clauses After Waksdale: A Practical Guide

The Post-Waksdale Drafting Standard

Since the Ontario Court of Appeal's 2020 decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391, the standard for enforceable termination clauses in Ontario employment agreements has been higher than at any point in Canadian employment law. The principle is clear: every provision in the termination section must independently comply with the Employment Standards Act (ESA). A single subclause that could, in any hypothetical scenario, permit a payment below ESA minimums voids the entire termination scheme — and the employee receives common law reasonable notice.

This article provides a clause-by-clause drafting framework that reflects the current state of Ontario employment law as interpreted by the Court of Appeal and the Superior Court through Waksdale and its progeny.

The Foundational Principle: Integrated Reading

The key insight from Waksdale is that termination provisions are read as a "single, integrated package." This means that even if the without-cause provision is perfectly drafted and ESA-compliant, it will be struck down if the for-cause provision — which the employer may never have relied on — violates the ESA. The contamination flows in both directions: a deficient for-cause clause voids the without-cause clause, and vice versa.

This requires a comprehensive approach to drafting. You cannot fix one clause in isolation. The entire termination section must be rebuilt as a cohesive, internally consistent framework where every component independently meets or exceeds ESA minimums.

Clause 1: Termination Without Cause

The without-cause provision is the most important clause in the termination section. It defines the employer's cost of ending the relationship.

Key requirements:

• Notice or pay in lieu: The clause must provide for notice of termination, or pay in lieu, that meets or exceeds the ESA minimums (one week per year of service, up to eight weeks). The clause should reference the ESA explicitly and commit to providing "at least" the minimum entitlements.
• Severance pay: For employees with five or more years of service at an employer with a payroll of $2.5 million or more, the ESA requires severance pay of one week per year of service, up to 26 weeks. The termination clause must account for this. A clause that provides only notice or pay in lieu, without addressing severance, is deficient.
• Benefit continuation: The ESA requires employers to continue benefit plan contributions during the statutory notice period. A termination clause that provides a lump-sum payment in lieu of notice without addressing benefit continuation is potentially non-compliant. The safest approach is to explicitly state that benefits will be continued during the notice period (or statutory notice period, if pay in lieu is provided).
• ESA floor language: Include clear language that the employee will receive "at least" their ESA entitlements and that if the contractual entitlements are less than the ESA minimums in any respect, the ESA minimums will apply.

Clause 2: Termination For Cause

This is where most pre-Waksdale agreements fail. The for-cause provision is the single most common source of Waksdale contamination.

The problem: The common law definition of "just cause" is broader than the ESA standard. Under the ESA, an employer can terminate without notice or pay in lieu only for "wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer." The common law "just cause" standard includes additional grounds — such as incompetence, insubordination, and dishonesty — that may not rise to the level of "wilful misconduct" under the ESA.

If your for-cause clause uses the common law "just cause" standard (or a list of cause events that goes beyond the ESA's "wilful misconduct" threshold), it theoretically permits termination without notice in circumstances where the ESA would still require minimum notice. That is a Waksdale deficiency.

The fix: The for-cause provision must distinguish between two scenarios:

• Termination for wilful misconduct (ESA standard): If the employee's conduct meets the ESA threshold of "wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned," the employer may terminate without notice or pay in lieu.
• Termination for just cause (common law standard, but below ESA threshold): If the employee's conduct constitutes just cause at common law but does not meet the higher ESA "wilful misconduct" threshold, the employer may terminate but must still provide ESA minimum notice and entitlements.

Clause 3: Resignation

Resignation provisions are often overlooked, but they are part of the integrated termination package. A resignation clause that is inconsistent with the ESA — for example, a clause that purports to waive the employee's right to treat a constructive dismissal as a termination — can contaminate the other termination provisions.

Best practice: The resignation clause should require a reasonable notice period (two to four weeks is standard), specify that the employer may waive the notice period and pay out the remainder, and should not include any language that could be interpreted as limiting the employee's rights under the ESA.

Clause 4: Probationary Period

Under the ESA, an employee who has been employed for less than three months is not entitled to notice of termination or pay in lieu. Many employment agreements include a "probationary period" clause that attempts to extend this period beyond three months, or that purports to allow termination during probation without any entitlements.

A probationary period clause must comply with ESA s.54: the probationary period for ESA purposes cannot exceed three months. A clause that states a "six-month probationary period" with no entitlements on termination is ESA-non-compliant for the period between months three and six. After Waksdale, this deficiency could contaminate the entire termination scheme.

Clause 5: Change of Control and Constructive Dismissal

If the employment agreement addresses change of control (acceleration of vesting, enhanced severance on change of control termination), those provisions must also be ESA-compliant. Similarly, any clause that defines or limits constructive dismissal must be drafted carefully to avoid conflicting with the ESA's deemed termination provisions.

The Saving Clause Debate

Some employment lawyers include a "saving clause" — language to the effect that "if any provision of this section provides less than the minimum entitlements under the ESA, the ESA minimums shall apply." The theory is that this clause cures any inadvertent ESA deficiency.

Courts have been inconsistent on whether saving clauses work. Some decisions have upheld them; others have held that a saving clause cannot rescue a fundamentally non-compliant provision. The safer approach is to draft each provision to independently comply with the ESA, using the saving clause as a belt-and-suspenders backstop rather than a primary defence.

Fresh Consideration for Existing Employees

If you are updating the employment agreements of existing employees, the new agreements require fresh consideration to be enforceable. Under Hobbs v. TDI International Bridges Inc., 2008 ONCA 566, simply requiring an existing employee to sign a new agreement — without new consideration such as a signing bonus, salary increase, or additional benefit — may render the new agreement unenforceable for lack of consideration.

For new hires, the offer of employment itself is sufficient consideration. For existing employees, you need something more. Plan the rollout accordingly.

The Stakes

The difference between an enforceable and unenforceable termination clause is the difference between ESA minimums and common law reasonable notice. For a senior employee, that gap can be the difference between eight weeks and eighteen months of pay plus benefits. The cost of drafting the clause correctly is negligible compared to the cost of getting it wrong.