Introduction

Termination clauses in employment contracts are a crucial component in defining the rights and obligations of both employers and employees. These clauses often outline the conditions under which an employer may terminate an employee and may offer clarity regarding the compensation an employee is entitled to receive upon such termination. These clauses can significantly limit an employer’s liability in cases of termination without cause, but their enforceability is subject to strict legal scrutiny, especially when it comes to ensuring compliance with both statutory and common law principles. Recent case law, including Dufault v The Corporation of the Township of Ignace, 2024 ONSC 1029, Baker v Van Dolder’s Home Team Inc., 2025 ONSC 952, and Singh v Clark Builders 2025 ABKB 3, provides important insights into the evolving legal landscape concerning the enforceability of termination clauses in Canada, including in Alberta.

The Legal Framework for Termination Clauses in Alberta

In Alberta, the enforceability of termination clauses in employment contracts is governed by both common law and statutory provisions under the Employment Standards Code (ESC). Under the ESC, employees are entitled to certain minimum standards regarding termination, such as notice or pay in lieu of notice, based on their length of service. Employment contracts that attempt to reduce an employee’s statutory entitlements below these minimums are typically unenforceable.

Common law principles further stipulate that an employee who is dismissed without cause is entitled to “reasonable notice,” which is determined by factors such as the length of employment, the employee’s age, the nature of their job, and other relevant factors. Employers often seek to limit their liability by including termination clauses that provide for severance or notice in accordance with the statutory minimums, which, if enforceable, would reduce the employer’s obligations under common law.

However, for a termination clause to be enforceable, it must be clear, precise, and unambiguous. Vague or imprecise clauses that do not clearly outline the scope of entitlements upon termination, or clauses that are inconsistent with the Code, will likely be found unenforceable.

The Dufault Decision (2024)

In Dufault v The Corporation of the Township of Ignace, 2024 ONSC 1029, which was affirmed by the Ontario Court of Appeal (Dufault v Ignace (Township) 2024, ONCA 915), the termination clause in the employment contract sought to limit the employee’s severance to the statutory minimums required under the Employment Standards Act, 2000, SO 2000, c 41. The plaintiff argued that the clause was unenforceable because it failed to clearly exclude his entitlement to common law notice, despite the contract’s attempt to limit his severance to statutory minimums.

In finding in favour of the plaintiff, the Court in Dufault held that since the with-cause provision of the termination clause violated the Employment Standards Act, the entire termination framework was invalid and unenforceable. The Cout found in favour of the plaintiff, even though the Defendants were not seeking to rely on the with-cause provision.

Specifically, the Court held that the wording in the with-cause termination clause, which allowed the employer to terminate the Employee’s employment “at any time” is prohibited by the Ontario Employment Standards Act, as there are certain circumstances and times, which the employer would be prohibited from terminating an employee’s employment.

Although Dufault has not yet been applied in Alberta, Dufault established that termination clauses may be looked at as an entire termination framework, and any ambiguity or inconsistencies may result in an entire termination framework being deemed invalid and unenforceable. While the Ontario Employment Standards Act differs from the Alberta Employment Standards Code, the Code and Alberta common law restricts when an employer can terminate an employee, such as when an employee is on a leave granted by the Code.

The Township of Ignace, disagreeing with the outcome of the appeal, has filed an application for leave to appeal to the Supreme Court of Canada. If accepted, a Supreme Court of Canada decision would become binding in Alberta, to the extent that it is applicable.

The Baker Decision (2025)

The Ontario case Baker v Van Dolder’s Home Team Inc., 2025 ONSC 952, dealt with the enforceability of a termination clause that sought to limit an employee’s entitlement to severance or notice in the event of dismissal without cause. In this case, the plaintiff, Mr. Baker, argued that the termination clause in his contract was unenforceable because it did not explicitly address his right to common law notice and failed to make it clear that he was waiving any entitlement to amounts beyond the statutory minimums.

The Court sided with Mr. Baker, stating that the termination clause was ambiguous and lacked sufficient clarity regarding the employee’s entitlement to severance. The ruling underscored that employers must ensure that their contracts clearly outline any limits to statutory entitlements.

Further, in relying on Dufault, the Court held that the without-cause provision was unenforceable since the Ontario Employment Standards Act does not permit an employer to terminate employment “at any time”, as the without-cause provision stated. General language stating that the employer will comply with the Employment Standards Act did not save the clause.

Baker reiterates that vague termination clauses that fail to specify a limitation of common law rights, or clauses that fail to comply with employment legislation will be deemed unenforceable. Employers must take care to ensure that their termination clauses are both compliant with the Employment Standards Code and clear enough to avoid disputes over common law entitlements.

The Singh Decision (2025)

The Alberta case Singh v Clark Builders, 2025 ABKB 3, directly addresses the enforceability of termination clauses in Alberta and is of particular importance given its jurisdictional relevance. In this case, the plaintiff, Mr. Singh, argued that the termination clause in his contract was unenforceable because it limited his entitlements to the statutory minimums under the Employment Standards Code, without sufficiently limiting his right to common law notice.

The Alberta Court of King’s Bench found that the termination clause was ambiguous and unenforceable because it did not make clear whether the employee’s entitlements were limited to statutory severance or whether the employee retained a right to claim common law severance. The Court emphasized that the employee’s right to reasonable notice under the common law could not be waived unless the contract explicitly and clearly stated that such a waiver was intended.

The Court reaffirmed the principle that termination clauses that do not clearly limit the scope of severance entitlements are unenforceable in Alberta, aligning with the principles set out in Baker.

Implications for Employers in Alberta

Clarity and Precision: The decisions in Dufault, Baker, and Singh underscore the importance of clarity and precision when drafting termination clauses. Alberta employers must ensure that their termination clauses specifically address both statutory and common law entitlements. Failure to do so may result in the clause being deemed unenforceable, leaving the employer exposed to the risk of higher severance costs under common law principles.

Common Law Rights: All three decisions make it clear that an employee’s entitlement to common law notice is not easily waived through vague language. A termination clause must explicitly state that the employee’s rights to reasonable notice under common law are being excluded. Employers who intend to limit their liability to the statutory minimums must do so with clear and unequivocal language that will withstand judicial scrutiny.

Compliance with the ESC: Employers in Alberta must also ensure that termination clauses comply with all requirements and minimum standards set out in the Employment Standards Code. A termination clause in which any aspect is inconsistent or contrary to the Employment Standards Code may render the entire termination framework unenforceable. This may include wording which, contrary to the Employment Standards Code, permits the employer to terminate an employee’s employment “at any time” or “for any reason”.

In light of these recent decisions, it is crucial for employers to review their employment agreements to ensure compliance with the most recent legal standards. These decisions may impact the enforceability of various clauses. Employers should take proactive steps to assess and update their contracts to mitigate the risk of potential legal challenges.

At Walsh LLP, Carmelle Hunka and Brody Sikstrom are available to assist businesses in reviewing and revising their employment agreements, ensuring they are both compliant with current laws and, if necessary, enforceable in court.

For further details or specific inquiries please contact:

Carmelle Hunka, Senior Counsel
Email: chunka@walshlaw.ca
Telephone: (403) 267-8457

Or

Brody Sikstrom, Associate
Email: bsikstrom@walshlaw.ca
Telephone: (403) 267-8471