Rewriting a Termination Clause Before It Was Ever Needed

The situation

Agnieszka and her business partner Kasia had built an incorporated accounting and advisory firm in Whitby into a business with annual revenue in the high single-digit millions, serving a roster of small and mid-sized business clients. As an accountant herself, Agnieszka was used to thinking about the firm's numbers with precision. What she had never taken a close look at was the paperwork the firm used to hire people.

Most of the firm's employment contracts had been assembled years earlier from a template a former office manager had adapted from something found online. Nobody had touched the wording since, even as the firm grew from a handful of employees into a business with several dozen staff spread across bookkeeping, tax, and advisory teams. With the firm planning to keep hiring, Agnieszka and Kasia decided it was time to have the contracts looked at properly, not because anything had gone wrong, but because nothing had ever been checked, and both of them knew enough about running a business to be uneasy about that gap.

What the review found

The review turned up a termination clause that was common, and commonly unenforceable. It tried to limit what an employee would receive if let go to the bare minimums set out in the Employment Standards Act, 2000 — the provincial law that sets minimum notice periods, termination pay, and in some cases severance pay for employees in Ontario. Relying on the ESA minimums instead of a larger notice period is a legitimate goal for an employer, but Ontario courts have become strict about how that goal has to be written into a contract.

The firm's clause described what would happen if an employee was terminated without cause — for reasons unrelated to misconduct, such as restructuring or performance — but it said nothing about what would happen if an employee was terminated with cause, for serious misconduct. Silence on that point is a problem, because the ESA sets an extremely narrow definition of conduct serious enough to disqualify an employee from even statutory minimums, one much stricter than the ordinary meaning of "just cause" used elsewhere in employment law. If a contract's cause language could, in any hypothetical situation, allow the employer to deny an employee their ESA minimums, courts have been willing to strike out the entire termination clause — not just the cause portion, but the without-cause portion too, even though it was the only part actually being relied on. When that happens, the terminated employee's entitlement is no longer capped by the contract at all. It reverts to the common law standard: a variable period of "reasonable notice" set by a judge weighing the employee's age, position, length of service, and how easily they could find comparable work. For a well-paid, mid-career professional, that standard routinely produces a notice period far longer, and far more expensive, than the ESA minimums the employer thought it had agreed to.

There was a second gap. The clause was also silent on whether benefits like health and dental coverage would continue during the statutory notice period, which the ESA requires. Courts have struck down clauses on that basis alone. Put together, the firm's existing contracts were exactly the kind of drafting that tends to fail the moment it is tested.

What we did

1. Reviewed every active employment contract in the business. Rather than fixing one template and hoping it covered everyone, we asked for the firm's full roster and looked at what each person had actually signed. Several employees, including some hired more recently, were on slightly different versions of the same flawed wording.
2. Drafted a termination clause built to survive scrutiny. The new language addressed with-cause and without-cause termination separately, made clear that the ESA's narrow definition of cause governed regardless of how the clause described misconduct, and expressly preserved benefit continuation during the statutory notice period. The goal was not to promise employees more than the firm intended — it was to make sure the ESA-minimums structure the firm wanted would actually be enforced as written, rather than thrown out entirely on a technicality.
3. Solved the consideration problem. A contract cannot usually be changed after the fact without giving the employee something of value in exchange for the new terms — otherwise the new terms may not be binding, a principle known as fresh consideration. We advised the firm to introduce the updated contracts alongside the firm's annual compensation review, when raises and role changes were already being communicated, so every employee who signed had received something tangible tied to signing.
4. Set a process for new hires going forward. For anyone joining after the rollout, the updated contract became the standard offer of employment, removing the consideration issue entirely since new hires have nothing to give up — they simply accept the job on the terms offered.
5. Documented the reasoning file. We kept a short written record of why the clause was worded the way it was, tied to the legal principles behind it, so that if a dispute ever arose, the firm could show the language had been deliberately and carefully chosen rather than copied without thought.

The outcome

About eighteen months after the contracts were updated, the firm needed to restructure a compliance role held by Vivian, a former police sergeant the firm had hired just over a year earlier to help manage its internal risk and regulatory processes as the client base grew. The role was being eliminated, not the person's performance — a straightforward without-cause termination, and precisely the scenario the updated clause had been written to handle.

Vivian's salary was roughly $130,000 a year. Under the firm's updated contract, her entitlement on termination was limited to the ESA minimums for her length of service: a notice period of a few weeks, paid out along with continued benefits for that period, totalling a few thousand dollars. Had the old, unenforceable clause still been in place, the calculation would have looked very different. With no valid contractual limit, Vivian's entitlement would have defaulted to the common law reasonable notice standard. For a mid-career professional with just over a year of service in a specialized role, a court applying that standard would likely have arrived at a notice period in the range of three to four months' pay — somewhere between roughly $32,000 and $43,000, six to eight times what the enforceable clause actually required.

The termination went ahead on the contractual terms. Vivian's departure, handled with a clear letter referencing the specific clause she had signed and the consideration that had supported it, closed without dispute. Agnieszka later said the exercise had felt like unnecessary paperwork at the time it was done — until the day it turned out to be the only thing standing between a routine restructuring and a five-figure severance negotiation.

The firm has since made contract review a recurring item, checked whenever employment law changes are reported rather than left until the next problem forces the issue.

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