Rewriting Termination Clauses Before They Were Tested

The situation

Tharshini, a registered nurse, and Femi, who had spent years as a real estate agent before deciding he wanted something he could build rather than sell, started a home care staffing company in Barrie with Chidi, a former hospital administrator. Ten years later the business had grown into a company with roughly $2.8 million in annual revenue, placing personal support workers and registered nurses with private clients and retirement residences across the region. It employed about fifty people, most of them field staff, with a small office team handling scheduling, billing and payroll.

Like a lot of companies that grow quickly from a kitchen-table idea, the employment contracts had not kept pace with the business. The template the founders used in the early years had been drafted once, informally, borrowed loosely from a document one of them had seen at a previous job, and never revisited. It included a termination clause meant to limit the company's exposure if an employment relationship ended, but nobody had checked whether the clause actually did what it was supposed to do. Every new hire for a decade had signed the same wording, without anyone stopping to ask whether the law it relied on had moved.

What the review found

The three shareholders came to Treadstone Law for a general employment law check-up, prompted by a management consultant who had flagged the contracts as "probably outdated" without being able to say why. A review of the standard agreement found a termination clause that, on its face, looked reasonable but did not hold up against the Employment Standards Act, 2000 (ESA), which sets the legal floor for notice, severance and benefit continuation that no employment contract can fall below.

The clause tried to define when the company could dismiss someone for cause using language that was stricter for the employee than the ESA's own standard, and it was silent on continuing benefits during the statutory notice period. Under the approach Ontario courts have taken for years, a termination clause that contracts out of the ESA in any respect — even a part of it that might never come up — can be struck down entirely, not just narrowed. When that happens, the employee is not held to the ESA minimums the clause tried to set. Instead, they are entitled to reasonable notice at common law, which is calculated employee by employee based on age, length of service, position and the likelihood of finding comparable work, and which routinely runs to several months per year of service rather than the ESA's much smaller weekly entitlements.

In plain terms: an unenforceable termination clause does not just fail to help the employer. It actively removes the protection the employer thought it had, and replaces a predictable, budgetable number with an open-ended one that depends on the individual circumstances of whoever is being let go.

The three shareholders had never had to test the clause, which was part of the problem. Turnover in the field staff was normal for the industry and handled through resignations and short-service ESA payouts that never approached the point where the defect mattered. It was only once the company had built up a group of longer-tenured office staff — the people whose notice periods would actually be large enough to matter — that the gap in the contract became a real financial risk rather than a theoretical one.

What we did

1. Rewrote the termination clause from scratch. The new language set out clear, ESA-compliant provisions for termination with and without cause, including continued benefits during the statutory notice period, and avoided the layered definitions that had made the old clause vulnerable.
2. Built a rollout plan instead of a single mail-merge. New hires would sign the updated agreement immediately. For existing staff, we advised offering the new terms as part of a scheduled compensation review, with something of value — a raise, a bonus structure, or a title change — attached to the signature, since a contract change imposed on an existing employee with nothing offered in return can itself be challenged as unenforceable for lack of fresh consideration.
3. Flagged the transition period as the highest-risk window. We told the three shareholders directly that any termination decided upon before an employee had signed the updated agreement would be governed by the old, defective clause — and that the safest course was to hold off on terminations, where business needs allowed, until the rollout reached the people involved.
4. Advised on two terminations that came up months apart. The first involved a regional scheduling coordinator who had already signed the updated agreement as part of a promotion. The second involved a senior office manager who was still working under the original template because her performance review, and with it her new contract, had been pushed back twice by the pandemic-era hiring crunch and simply had not reached the top of the list.
5. Negotiated the second termination as a settlement, not a fight. Once it was clear the office manager's old contract would not survive a challenge, we recommended treating her common law exposure as the realistic starting point for negotiation rather than defending the unenforceable clause, and opened settlement discussions on that basis.

The outcome

The scheduling coordinator's termination went almost exactly as planned. Because her updated contract's clause held up, the company's obligation was limited to ESA minimums for her length of service — a payment of a few thousand dollars plus continued benefits for a short statutory period, and nothing more. There was no dispute and no negotiation; the enforceable clause did the job it was written for.

The office manager's situation was different, and more expensive. Given roughly nine years of service, her age and her role, her realistic common law exposure — what a court would likely award if the matter proceeded and the old clause was struck down, as expected — sat in the range of roughly $85,000 to $95,000 in notice-related pay, well above the modest ESA minimum of around $7,000 to $8,000 the old clause had wrongly assumed would apply. Rather than let the dispute run for a year or more through negotiation, a possible complaint, and potentially litigation, both sides worked toward a number that reflected the real risk on each side: the company's exposure at common law, and the employee's own interest in a resolved severance package rather than a drawn-out claim. The parties settled at roughly $46,000, inclusive of a formal release, paid out over two installments to manage the company's cash flow.

That settlement cost the company meaningfully more than the ESA floor it had originally assumed would apply. But it also came in well under the top of its realistic exposure, and it closed the matter in weeks rather than the year or more a formal claim could have taken. For Tharshini, Chidi and Femi, the lesson was not that the contract rewrite had failed — it was that the rewrite only protects the relationships it actually reaches, and that the gap between the old contract and the new one is where the cost lives.

What you can learn from this