When a Termination Clause Doesn't Hold Up in Ajax

The situation

Manpreet had worked as a factory technician at a manufacturing plant in Ajax for just over eight years, maintaining production equipment on a line that ran three shifts a day. He was 47, had never missed a performance review, and had no warning that anything was wrong until he was called into a small office on a Tuesday morning by Lan, the plant's HR manager, and told his position was being eliminated as part of a restructuring. He was walked out that afternoon, with a termination letter and a box for his personal effects.

The letter offered eight weeks of pay in lieu of notice, plus a modest severance top-up, framed as "full and final" compensation calculated under the Employment Standards Act, 2000 — Ontario's baseline law setting minimum notice, severance and other employment standards for most employees. The letter noted that Manpreet's signed employment contract, dated back to when he was hired, capped his entitlement at exactly this amount and no more. His wife, Jing, who worked as a bookkeeper and handled the household's finances, did the math that evening: on his roughly $68,000 annual salary, eight weeks came to about $10,500 before deductions. That was the figure standing between the household and the months it would likely take to replace a job that had taken eight years to build.

Manpreet came to Treadstone Law before signing the release attached to the offer. A release is a document in which a departing employee agrees, in exchange for the payment offered, to give up any further legal claim against the employer. Once signed, it is generally final — so the contract needed a proper review before anything went back to the employer.

The legal problem

Employees who are dismissed without cause are entitled to advance notice of termination, or pay instead of notice, under two overlapping frameworks. The Employment Standards Act, 2000 sets a statutory floor — a modest, formula-driven minimum based on length of service. Separately, the common law (the body of judge-made contract principles that applies unless a valid written contract displaces it) generally entitles a dismissed employee to reasonable notice, assessed by weighing factors such as the employee's age, length of service, position, and the likely difficulty of finding comparable work. For an employee with Manpreet's profile, common law notice typically runs well beyond the statutory minimum — often many months rather than a few weeks.

An employer can contract out of the common law and limit an employee to the statutory minimum, but only if the termination clause doing so is drafted with real precision. Courts read these clauses strictly against the employer, because the employee usually has far less bargaining power when signing an employment contract on day one. If a termination clause could, on its wording, allow the employer to pay an employee less than the statutory minimum in any scenario — even one that never actually arose — the whole clause is typically struck down as unenforceable, and the employee falls back to full common law notice.

Reviewing Manpreet's contract, our team found exactly that kind of defect. The clause purported to cap his entitlement to "base salary only" for the notice period, with no mention of continuing his health and dental benefits during that time. The Employment Standards Act, 2000 requires an employer to keep contributing to an employee's benefit plans throughout the statutory notice period. A clause that omits this, or that could be read to deny it, contracts below the statutory floor — and a termination clause that could ever produce a result below the statutory minimum is void, even in the specific case where it happens not to. The employer's own drafting had unraveled the very limit it was meant to enforce.

What we did

1. Reviewed the full employment contract before any release was signed. The termination clause could not be assessed in isolation — we checked it against the benefits and compensation provisions elsewhere in the agreement, which is where the gap surfaced.
2. Confirmed the clause's defect made it unenforceable in its entirety. Ontario courts treat a termination clause as void if any part of it could produce a result below the statutory minimum, regardless of what the employer actually intended or paid. We set out this reasoning plainly for Manpreet so he understood why the eight-week offer no longer applied.
3. Calculated Manpreet's common law notice entitlement. Weighing his age, his eight years of service, the specialized but not highly transferable nature of his technical role, and the realistic time it would take him to find comparable work, we assessed his reasonable notice period at roughly eight months' pay — in the range of $42,000 to $46,000 including benefits continuation, well above the $10,500 on the table.
4. Sent a demand letter to the employer setting out the contract defect and the calculation. The letter explained, in plain terms, why the termination clause could not be relied on and what a court would likely award if the matter proceeded to litigation, along with the delay and cost that would involve for both sides.
5. Negotiated directly with the employer's counsel rather than filing a claim immediately. Litigation in the Superior Court over a dispute this size can take a year or more to resolve and carries cost risk for both parties. Once the employer's lawyer confirmed the same reading of the clause, negotiation moved quickly.
6. Documented Manpreet's job search efforts throughout. A dismissed employee has a duty to make reasonable efforts to find new work — called the duty to mitigate — and evidence of a genuine search strengthens a notice claim and protects against later arguments that the employee could have reduced the loss.

The outcome

Within about six weeks of the initial demand letter, the employer's counsel came back with a counter-offer at roughly five months' pay, arguing that Manpreet's technical skills would transfer reasonably well to other manufacturing employers in the region and that his notice period should sit at the shorter end of what our calculation supported. We responded with recent job postings for comparable technician roles showing few local openings at his pay level, along with confirmation that Manpreet had already applied to over a dozen positions. The employer moved again.

The parties settled at roughly $41,000, inclusive of the eight weeks already offered and continued health and dental coverage for the full notice period. Manpreet did not need to file a claim or appear in court, and the matter closed within about three months of his dismissal — a fraction of the time a contested lawsuit would have taken. He found a new position not long after, which closed out his duty to mitigate cleanly rather than leaving it as a live issue if the employer had pushed back further.

The gap between the original offer and the final settlement — roughly $31,000 — existed entirely because the termination clause his employer had relied on for years did not do what it was written to do. Nothing about Manpreet's job performance or the circumstances of his dismissal changed between the two numbers. Only the reading of one paragraph in a contract he had signed eight years earlier did.

What you can learn from this