The Ontario Court of Appeal’s decision in De Castro v. Arista Homes Limited, 2025 ONCA 260 reinforces the principle that employment termination clauses must strictly comply with the Employment Standards Act, 2000 (ESA). The court upheld the motion judge’s ruling that an ambiguous termination clause rendered the entire termination provision unenforceable, entitling the employee to common law reasonable notice.
Background
Ellen De Castro was employed by Arista Homes Limited for nearly five years before being dismissed without cause. Upon termination, Arista provided her with four weeks’ pay in lieu of notice, in line with ESA minimums.
De Castro sued, arguing that the termination provisions were unenforceable because they violated the ESA. She sought damages based on common law reasonable notice rather than the contractual minimum.
Key Legal Issue
The central issue was whether the termination for cause clause in the employment agreement complied with the ESA. If it did not, under Waksdale v. Swegon North America Inc., 2020 ONCA 391, the entire termination provision (including the without-cause clause) would be void, entitling the employee to common law notice.
The Termination Clause in Question
The termination clause stated:
“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.”
It further defined “Cause” as:
“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.”
Key Legal Principles
- Waksdale v. Swegon North America Inc. (2020) established that if a “for cause” termination clause violates the ESA, the entire termination section in the contract is unenforceable—even if the “without cause” provision appears compliant.
- Employment contracts are interpreted differently than commercial agreements due to the power imbalance between employer and employee.
- The ESA is remedial legislation and must be interpreted in a way that maximizes employee protection.
Court’s Analysis
- Wording of the Clause:
The contract allowed termination for “cause” or for conduct including “wilful misconduct, disobedience, breach of Employment Agreement or wilful neglect of duty that is not trivial and has not been condoned.” The Court found that this wording was overbroad—it allowed for termination without notice for conduct that would not meet the “wilful misconduct” threshold required under the ESA. - Use of “Shall Include”:
The clause defined cause using “shall include… any act or omission which would in law permit termination.” The Court interpreted “shall include” as indicating a non-exhaustive list, opening the door to terminations for reasons not compliant with ESA minimums. - Ambiguity & Interpretation:
The Court rejected Arista’s argument that the clause must be read as compliant with the ESA. Instead, it reaffirmed that intent is irrelevant if the actual wording fails to comply. Ambiguities are to be resolved in favour of the employee. - Statutory Compliance Trumps Intent:
It’s insufficient for a contract to express an intent to comply with the ESA. The actual language used must meet the ESA’s standards.
Decision
- The Court dismissed the appeal, upholding the lower court’s decision.
- De Castro was awarded eight months’ salary in lieu of notice.
- Arista was ordered to pay $5,000 in costs.
Implications
- This decision continues the trend started in Waksdale of courts invalidating termination clauses that potentially contract out of the ESA minimums.
- Employers must draft termination clauses with precision, ensuring they do not allow dismissal without notice unless the conduct clearly falls under ESA-compliant standard of “wilful misconduct.”
- A non-compliant “just cause” clause can render even a compliant “without cause” clause unenforceable.
Key Takeaways for Employers
- Audit your employment contracts: Ensure every termination clause complies strictly with the ESA.
- Avoid non-exhaustive definitions (e.g., “shall include”) when describing “cause.”
- Use precise, narrow language that aligns with ESA definitions, especially when referring to misconduct.
- Understand that intent to comply is not a defense—in Ontario, it is the wording that matters most.
- This case was specific for Ontario as Ontario has the added bar of wilful misconduct under the ESA.
- Most importantly, always consult with a seasoned advisor or member of a legal team when in doubt over your termination clause as they can provide additional guidance, context, and perspective and potentially assist in saving you from costly outcomes.
Advisory Team
Our Advisory team can assist to guide you through difficult situations such as terminations. Reach out to us through the chatbot inside our HR Hub or at Service@hrcovered.com. We’re here to help you.
Citation: De Castro v. Arista Homes Limited, 2025 ONCA 260 (CanLII)
