Following the Ontario Court of Appeal’s (“ONCA”) recent decision in Baker v Van Dolder’s Home Team Inc[Baker], the Ontario Superior Court of Justice (“ONSC”) has provided further guidance on the enforceability of termination clause in employment agreements, including in federally regulated workplaces.

In Henshell v BFN of Ojibways[Henshell], the ONSCapplied the ONCA’s contextual approach in Baker to interpreting termination clauses, upholding a termination clause governed by the Canada Labour Code (“CLC”), despite potentially conflicting language elsewhere in the employment agreement. In Henshell, the ONSC also dismissed the employee’s claims for moral and punitive damages.

Henshell reinforces the importance of interpreting employment agreements as a whole and confirms that allegations concerning the reasons for dismissal, without more, will not support a claim for moral damages arising from the manner of dismissal.

Background

In May 2024, the employee left her established legal practice to become Chief Executive Officer of Batchewana First Nation of Ojibways (“BFN”). Less than three months later, BFN terminated her employment without cause.

The employee’s employment agreement contained a termination clause permitting BFN to terminate her employment for any lawful reason, subject to her minimum statutory entitlements under the CLC. The termination clause also expressly excluded any entitlement to common law reasonable notice.

Separately, the employment agreement contained a rules and regulations clause stating that any breaches of BFN’s confidentiality policies “will be cause for severe discipline and/or termination of employment for cause”.

Following her dismissal, the employee commenced a wrongful dismissal action seeking $350,000 in damages, representing 24 months of common law reasonable notice, as well as moral and punitive damages. She argued that the termination clause was unenforceable because the confidentiality clause permitted BFN to terminate her employment for cause without providing statutory entitlements, even where the applicable legal standard for denying those entitlements had not been met.

The ONSC Decision

Termination Clause Upheld as Enforceable

The ONSC upheld the termination clause, finding that the employment agreement, read as a whole, reflected the parties’ objective intention to comply with the CLC. Accordingly, the employee was not entitled to common law reasonable notice damages.

In reaching this conclusion, the ONSC applied the interpretive framework established in Baker, which requires employment agreements to be interpreted as a whole, having regard to the parties’ objective intentions and the relevant surrounding circumstances, rather than assessing individual clauses in isolation.

The ONSC rejected the employee’s argument that the confidentiality clause invalidated the termination clause for three reasons:

• First, the wording “severe discipline and/or termination of employment for cause” contemplated alternatives. The use of “or” meant that a breach of confidentiality would not necessarily result in termination for cause.
• Second, the termination clause expressly required termination to be for a lawful reason and preserved the employee’s minimum statutory entitlements under the CLC. Read together, the clauses did not permit BFN to circumvent its statutory obligations.
• Third, the parties could not objectively have intended to contract out of the CLC. The ONSC also considered the employee’s experience as a lawyer in assessing the parties’ objective intentions and rejected an interpretation that would deprive her of statutory entitlements.

The ONSC distinguished earlier decisions invalidated termination clauses based on language permitting termination for cause without statutory entitlements. Those decisions had not applied the contextual interpretive framework subsequently clarified in Baker.

No Entitlement to Moral and Punitive Damages

The ONSC dismissed the employee’s claims for moral and punitive damages because the pleaded facts did not establish a legally sufficient basis for either claim.

Importantly, an enforceable termination clause does not necessarily bar a separate claim for moral damages. Employees may still pursue moral damages where an employer acts in bad faith in the manner of dismissal and causes compensable harm.

However, the employee’s allegations focused primarily on BFN’s reasons for terminating her employment, rather than how BFN carried out the dismissal. In particular, she alleged that her dismissal was retaliatory and followed concerns she had raised about potential financial misappropriation.

Even if accepted as true, these allegations did not establish bad faith in the manner of dismissal or otherwise support a claim for moral damages. The ONSC therefore dismissed the employee’s claim for moral damages.

The ONSC also dismissed the employee’s claim for punitive damages because she had not pleaded an independent actionable wrong capable of supporting such an award.

The action was dismissed in its entirety, without leave to amend.

Key Takeaways for Employers

• Read termination clauses in context: Henshell reinforces Baker’s direction that termination clauses should be interpreted in the context of the employment agreement as a whole, having regard to the parties’ objective intentions. Isolated contractual language should not automatically invalidate an otherwise enforceable termination provision.
• Express statutory compliance language matters: Clear language preserving minimum statutory entitlements and requiring lawful termination can support the enforceability, even where other clauses contemplate termination for cause. Employers should nevertheless ensure that all clauses are clear, consistent, and compliant with applicable employment standards legislation.
• Distinguish the reason for dismissal from the manner of dismissal: Allegations that a termination was unjustified or retaliatory will not, without more, establish entitlement to moral damages. Such claims must be supported by material facts that demonstrate bad faith in the manner of dismissal and resulting compensable harm.
• The Baker framework extends to federally regulated workplaces: Although Baker concerned termination provisions governed by Ontario’s Employment Standards Act, 2000, Henshell demonstrates that its contextual interpretive approach can also be applied to termination provisions governed by the federal CLC.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.