Termination Provisions and the Perils of Imprecise Drafting: Key Lessons from De Castro v Arista Homes Limited

The Ontario Court of Appeal’s recent decision in De Castro v Arista Homes Limited, 2025 ONCA 260 (De Castro) provides Ontario employers with yet another reminder about the importance of clear and concise drafting in employment contracts (an exercise that has become much more convoluted than it should be), and the extent to which the Ontario courts will strictly scrutinize the interpretation of termination provisions in such contracts.

Key Takeaways

• The importance of ensuring strict compliance with the ESA: De Castro reinforces that employment contracts must avoid using any language that could be interpreted to allow for a termination without notice in circumstances that extend beyond those authorized by Ontario’s Employment Standards Act, 2000 (the ESA)—currently, situations involving employees who are guilty of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”.
• Ambiguous drafting will be interpreted in favour of the employee: De Castro also reinforces the established principle that the ESA is “remedial legislation” and “intended to protect the interests of employees”, and therefore any ambiguity in an employment contract will be strictly construed in favour of the employee. 

The Decision

In De Castro, the employee in question was terminated without cause after having been employed with Arista Homes Limited for a period of four years and nine months. In accordance with the minimum requirements of Ontario’s ESA, the employer paid out four weeks’ salary in lieu of notice on termination.

The employee subsequently commenced a claim for wrongful dismissal and moved for summary judgment, alleging that the termination “for cause” provision in the governing employment contract violated the ESA, and therefore all the termination provisions in the employment contract must be rendered unenforceable as a result. The impugned termination “for cause” provision provided:

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. 

[…]

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. 

The motion judge decided in favour of the employee, holding that the bolded portions of the termination clause impermissibly extended beyond the limited circumstances in which an employer may terminate an employee without notice under the ESA.¹ Specifically, section 2(1)(3) of O Reg 288/01 provides that an employee may only be terminated without notice when the employee “has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”

In its decision released on April 3, 2025, the Ontario Court of Appeal affirmed the motion judge’s ruling.

In maintaining that the termination provision was unenforceable, the Court of Appeal emphasized that the provision contemplated that the employee could be terminated without notice either “for Cause”, or because the employee “[had] 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”. In the Court of Appeal’s view, this “disjunctive language” could be interpreted to contravene the ESA for the following reasons:

1. A termination without notice could seemingly be permitted in situations involving acts or omissions that fell below the requisite ESA standard. For example, the provision contemplated a termination for cause based on “a breach of [the] Employment Agreement”, but did not expressly require that any such breach be either “wilful or serious.” 
2. Although the final sentence of the provision defined “Cause” by noting that it “shall include . . . involvement in any act or omission which would in law permit” termination without notice”, the words “shall include” could be interpreted to suggest that the definition was non-exhaustive and that circumstances other than those specified could be relied on to impermissibly justify a termination without notice. 
3. Finally, despite the provision having defined “Cause” as any act or omission that would, in law, permit a termination without notice, the Court of Appeal framed the issue as not whether an employment contract purports to comply with the law, but whether the language in the contract actually does comply with the law. For the reasons noted above, the Court of Appeal was of the view that the termination provision was non-compliant with the ESA. 

In dismissing the appeal, the Court of Appeal upheld the motion judge’s award of eight months’ reasonable notice at common law, plus costs awarded to the respondent employee in the amount of C$5,000. 

Conclusion

De Castro is the latest addition to an ongoing series of cautionary tales for Ontario employers about the consequences of imprecise drafting. Overly broad or ambiguous language in an employment contract can expose employers to significant liability, including opening the door for common law reasonable notice damages that far exceed an employee’s minimum statutory entitlements. 

To reduce the risk that an employment agreement is found to be offside the ESA and rendered unenforceable, Ontario employers are encouraged to regularly review the terms of their employment agreements with experienced employment counsel.