Can a Termination Clause Be Unenforceable in Ontario?

What makes a termination clause unenforceable in Ontario?

A termination clause becomes unenforceable when it fails to meet the minimum standards set by the Employment Standards Act, 2000 (ESA). Ontario courts will not allow an employer to contract out of the ESA — and if any part of a termination clause violates the Act, courts can strike the entire clause down.

In Wigdor v. Facebook Canada Ltd., 2026 ONCA 572 (CanLII), the Court of Appeal for Ontario examined a termination clause that included a two-week notice period during a probationary phase. The problem? The employer had already recognized the employee’s prior service. That recognition was inconsistent with treating the employee as a probationer for notice purposes, and the clause could not survive scrutiny.

Once the clause was struck, the common law presumption of reasonable notice — which courts have developed over decades — stepped back in. The result was a 10-month notice entitlement, far beyond what the contract promised.

What is reasonable notice and how is it calculated?

Reasonable notice is the amount of advance warning — or pay in lieu — that an employee is owed when dismissed without cause, absent an enforceable written agreement to the contrary. It is determined by factors like the employee’s age, length of service, character of employment, and availability of similar work.

The ESA sets out a floor: minimum notice based on years of service. But common law reasonable notice can be much higher. When a termination clause is unenforceable, employees fall back on the common law standard. In this case, the court upheld 10 months as the appropriate measure — a significant difference from what the contract provided.

If you are unsure whether your employment contract limits your entitlements properly, our Ontario employment lawyers can review the language and advise you on your rights.

Are RSU and equity compensation plans covered by the ESA?

Yes — RSUs structured as share-based employee compensation and incorporated into an employment agreement can be subject to the ESA. This is an important point for employees in the tech sector and other industries where equity forms a meaningful part of total compensation.

The court in this case found that the RSU grants at issue were not separate from the employment relationship — they were built into the employment agreement itself. As a result, a forfeiture clause that stripped the employee of RSU entitlements upon termination was found to be void under section 5(1) of the ESA. That section prohibits any agreement that purports to waive or reduce an employee’s statutory entitlements.

The court distinguished an earlier case called Mikelsteins, which had reached a different conclusion, by focusing on how these RSUs were specifically structured. The takeaway: the legal treatment of equity compensation depends heavily on the details of the plan and how it connects to the employment contract.

What happens to RSU grants during the statutory notice period?

During the statutory notice period under sections 60 and 61 of the ESA, an employer cannot alter the terms and conditions of employment. The court confirmed that pay in lieu of notice must reflect the amounts the employee would have received had they continued working — including compensation tied to RSU vesting — without any reduction in terms.

This means that if RSUs were scheduled to vest during the notice period, forfeiting them at the moment of termination may violate the ESA. Employees who have been terminated and lost unvested equity should consider whether those grants are recoverable as part of their severance claim.

For employees in the Greater Toronto and Hamilton Area, our Burlington employment law team and Mississauga employment lawyers regularly assist clients with complex compensation claims involving equity and bonuses.

Can an employee get punitive damages for delayed ESA payments?

Punitive damages for delayed ESA payments are possible in principle, but the bar is high. Courts require conduct that is “harsh,” “vindictive,” or “malicious” — language drawn from the Supreme Court of Canada’s decision in Honda v. Keays.

In this case, the employer delayed ESA payments by approximately 10 months. The court acknowledged that the delay was dilatory — meaning the employer dragged its feet — but found it did not rise to the level of reprehensible conduct required to justify punitive damages. The punitive damages claim was denied, and the Court of Appeal found no palpable and overriding error in that conclusion.

This is a reminder that not every employer misstep will attract punitive damages. The conduct must be genuinely egregious, not merely inconvenient or frustrating.

Practical takeaways for employees

• Get your termination clause reviewed before you sign. A clause that looks reasonable on paper may still fail ESA standards and be unenforceable — but you are better off knowing that before a dispute arises. Consider an employment contract review with a lawyer.
• Prior service matters. If your employer has recognized service from a previous role or a predecessor company, that recognition can affect how termination provisions are interpreted — and whether a probationary notice period makes legal sense.
• Equity compensation is not automatically excluded from the ESA. If you have RSUs, stock options, or other share-based pay built into your employment agreement, those entitlements may be protected under Ontario law even if your contract says otherwise.
• Track vesting schedules carefully. If you are terminated while RSUs are unvested, document what would have vested during the notice period — that information is critical to any compensation claim.
• Delayed ESA payments are not automatically punishable. If your employer is slow to pay, that is a problem, but it may not reach the threshold for punitive damages. Focus first on recovering what you are owed.

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This article is automated commentary on a public court decision and is for general information only — not legal advice. Decisions rely on facts unique to each case. If you are affected by a similar issue, contact a lawyer for advice specific to your situation.