Post-Waksdale termination clause drafting, ESA minimum entitlements table, probation period rules, fixed-term traps, and restrictive covenant enforceability.
Ontario employment contracts are among the most consequential commercial documents a business signs — and the most frequently litigated. The Supreme Court's validation of the Waksdale approach means that a single defective clause can unwind an employer's entire notice limitation strategy, exposing the employer to common law reasonable notice for the full employment period. This guide covers what employment lawyers review in every employment agreement.
The Ontario Court of Appeal held that the enforceability of a termination clause must be assessed holistically — not part by part. If any portion of the termination provision (including a just-cause clause that is never invoked) purports to contract out of the ESA, the entire termination provision is void. The result: the employee is entitled to common law reasonable notice, not the contractual notice period. This decision invalidated thousands of employment contracts that had been considered enforceable.
Using 'cause' as defined in the contract (e.g., 'serious misconduct') rather than the ESA's narrower 'wilful misconduct' standard — Waksdale makes the entire termination provision void
Specify that 'cause' for no-notice termination means 'wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned' — tracking ESA language exactly
Language like 'we will provide ESA minimums only' — enforceable to displace common law if validly drafted, but any other defect in the termination clause voids the entire provision
Include a severability clause specifically for termination pay: 'If any part of this termination provision is unenforceable, the minimum ESA entitlement shall apply' — courts have been skeptical but some post-Waksdale decisions accept this
Failing to address benefit continuation during the notice period — ESA requires continuation of benefits for the statutory notice period
Expressly state that benefits will be maintained during any statutory notice period and either continued or paid in lieu during any contractual notice period
Paying a lump sum 'in full satisfaction of all amounts owing' — may attempt to include severance pay in a termination pay clause, violating ESA
Clearly separate and identify termination pay and severance pay components; do not bundle them or purport to satisfy severance in the termination clause
Excluding bonus or commission from notice period pay calculation — Paquette v. TeraGo (2016 ONCA) requires continued accrual of variable compensation during reasonable notice period
Address variable pay in the termination clause or at minimum in the bonus/commission plan; specify whether it continues during notice or is subject to active employment requirements
| Length of Service | ESA Termination Pay | ESA Severance Pay* |
|---|---|---|
| Less than 3 months | None | None |
| 3 months to 1 year | 1 week | None |
| 1 year to 2 years | 2 weeks | 1 week* |
| 2 years to 3 years | 3 weeks | 2 weeks* |
| 3 years to 4 years | 4 weeks | 3 weeks* |
| 4 years to 5 years | 5 weeks | 4 weeks* |
| 5 years to 6 years | 6 weeks | 5 weeks* |
| 6 years to 7 years | 7 weeks | 6 weeks* |
| 7+ years | 8 weeks (maximum) | 1 week per year to 26 weeks max* |
*Severance pay applies only where employer's Ontario payroll is $2.5M+ or the employee was laid off as part of a mass lay-off (50+ employees). Severance pay is in addition to termination pay.
Common law notice is almost always higher than ESA minimums. The Bardal factors (character of employment, length of service, age, availability of similar employment) typically yield 1 month per year of service as a rough benchmark — but can be higher for senior employees. ESA minimums are the floor only.
Howard v. Benson Group (2016 ONCA): An employee dismissed before the end of a fixed-term contract is entitled to the wages for the remainder of the contract — no mitigation duty, no Bardal analysis. If a fixed-term contract does not include a valid early termination clause, the full remainder of the contract is payable. For long fixed-term contracts (2+ years), this can be catastrophically expensive.
| Type | Status | Exceptions | Enforcement |
|---|---|---|---|
| Non-Compete | Prohibited (s. 67.2 ESA) for most employees since Oct 25, 2021 | Business sale context; executives (C-suite) — still enforceable if reasonable | Void and unenforceable for employees covered by the ESA prohibition |
| Non-Solicitation of Clients | Enforceable if reasonable | Must be limited in time (typically 12-24 months) and geographic scope | Courts assess reasonableness; activity-based (no cold-calling vs no dealing) matters |
| Non-Solicitation of Employees | Enforceable if reasonable | Must be time-limited; applies only to employees known to the departing employee | Generally easier to enforce than client non-solicits if narrowly drafted |
| Confidentiality / NDA | Fully enforceable — no ESA restriction | Cannot prevent disclosure of ESA rights or public interest disclosures | Injunctions readily granted; damages available for breach |
Post-Waksdale v. Swegon (2020 ONCA), a termination clause is void in its entirety if any part of it — including the just cause provision — attempts to contract out of ESA minimums, even if other parts appear valid. Courts read the entire termination provision holistically. Common defects: clauses that allow termination for cause with no notice but use 'cause' more broadly than the ESA's 'wilful misconduct' standard; clauses that purport to limit severance pay below ESA entitlements; and clauses that exclude benefit continuation.
The ESA provides that employees with less than 3 months of service are not entitled to notice of termination or termination pay under the ESA. This effectively creates a 3-month probationary period for ESA purposes. However, common law notice rights still apply during this period unless validly contracted out. A contractual probation period longer than 3 months does not extend the ESA exemption — ESA minimums apply once an employee hits 3 months of service regardless of what the contract says.
Effective October 25, 2021, the Employment Standards Act was amended to prohibit non-compete agreements in most employment contracts (s. 67.2 ESA). The prohibition does not apply to agreements entered into in connection with the sale of a business where the seller becomes an employee of the buyer, or to executive-level employees (C-suite). Non-solicitation of clients and employees clauses remain enforceable if reasonable in scope.
ESA termination pay: 1 week per year of service, up to 8 weeks (for employees with 3+ months service). ESA severance pay (additional, for employees with 5+ years and employer payroll of $2.5M+): 1 week per year of service, up to 26 weeks. Benefit continuation during the notice period. These are minimums only — common law reasonable notice is typically much higher and applies unless validly contracted out.
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