How a Simple “or” Can Derail an Employment Contract
(De Castro v. Arista Homes Ltd., 2025 ONCA 260)
The Ontario Court of Appeal recently reminded employers about the need for precise drafting in their employment contracts. In specific, provisions related to termination. The termination provisions in question in De Castro were:
If you are terminated for Cause or you have been guilty of wilful misconduct, disobedience, breach of Employment Agreement or wilful neglect of duty that is not trivial and has not been condoned by ARISTA, then ARISTA will be under no further obligation to provide you with pay in lieu of reasonable notice or severance pay whether under statute or common law.
and
For the purposes of this Agreement “Cause” shall include your involvement in any act or omission which would in law permit ARISTA to, without notice or payment in lieu of notice, terminate your employment.
Much of the issue centered around the bolded words above.
The Court found that “or” in the context, purported to allow the employer to terminate an employee without notice or severance either for just cause, or for other reasons, not all of which (breach of employment agreement for example) are stated grounds for just cause termination under the relevant employment standards legislation.
To simplify, the agreement as drafted effectively allowed the employer to terminate an employee for any breach of employment agreement, even such breaches that may be minor and accidental, and was not limited to breaches that would qualify as serious or wilful conduct.
The Court also agreed with Justice Koehnen’s finding that “shall include”, when defining cause, suggested that its definition was “non exhaustive and that circumstances other than those specified could justify termination”. I.e. that cause could include a laundry list of items that are not exclusive to those legally permissible.
For these reasons, the Court of Appeal dismissed the appeal, found no error in Justice Koehnen’s decision that the termination provisions were unenforceable, and agreed that the employee was entitled to notice under the common law.
The Court concluded with a reminder that the Employment Standards Act is “remedial legislation, intended to protect the interest of employees”.
So, whether intentional or not, employers need to be mindful, and employees need to be aware, that where an employment agreement expands or purports to expand an employer’s termination entitlements outside of the applicable employment standards legislation, various clauses, or agreements as a whole in some circumstances, may be found to be unenforceable.
Written by C.J. Galozo, Employment and Civil Litigation Lawyer.
