For Ontario employers, a well-drafted termination clause is one of the most valuable tools in an employment contract. Without one, a terminated employee is entitled to “reasonable notice” pay at common law—potentially up to 24 months of their regular pay depending on factors such as length of service, age, and the nature of the role.
However, with a written employment contract, this amount can be reduced through a “termination clause.” This clause in the contract reduces the amount payable upon termination of employment to the minimum “termination pay” level established by the Employment Standards Act (which is only 1-8 weeks of the employee’s pay, depending on the length of employment).
When drafted correctly, a termination clause can significantly reduce the amount of pay due to an employee. However, drafting these clauses is a technically demanding exercise, and courts apply strict rules when scrutinizing them. If a termination clause is struck down, the employer loses its
