A buyer that keeps a seller’s staff keeps their written contracts. Section 5(1) of the Employment Standards Act, 2000 says no employer “shall contract out of or waive an employment standard and any such contracting out or waiver is void”. Where a termination clause is void, the Court of Appeal for Ontario has held the employee is entitled to reasonable notice at common law instead.
Key takeaways
SECTION 01 OF 08
Part III of the Act, marginal note No contracting out. Section 5(1) reads: “Subject to subsection (2), no employer or agent of an employer and no employee or agent of an employee shall contract out of or waive an employment standard and any such contracting out or waiver is void.” Three things follow. It binds the employee as much as the employer, so agreement is not a defence. It operates on the term, not the agreement: what falls away is the contracting out. And it is automatic.
An employment standard is defined by section 1(1) as “a requirement or prohibition under this Act that applies to an employer for the benefit of an employee”, and “employment contract” includes a collective agreement. The seller’s employment paper comes with the staff, and its defects travel with it. Treadstone Law on honouring the seller’s contracts sets out what survives each deal structure.
SECTION 02 OF 08
The exception sits in the same section. Subsection 5(2): “If one or more provisions in an employment contract or in another Act that directly relate to the same subject matter as an employment standard provide a greater benefit to an employee than the employment standard, the provision or provisions in the contract or Act apply and the employment standard does not apply.”
Read the qualifier: the comparison runs subject matter by subject matter, not total against total. Generosity about notice is not a greater benefit in respect of the separate standard governing benefit-plan contributions. Treadstone Law’s guide to drafting an enforceable clause works the same list.
SECTION 03 OF 08
Section 54 bars terminating an employee continuously employed for three months or more without notice under section 57 or 58, or pay in lieu under section 61. The section 57 ladder climbs by a week a year to eight weeks at eight years, its ceiling. Severance is separate, owed under section 64(1) at five years’ service where, among other routes, “the employer has a payroll of $2.5 million or more”, and capped at 26 weeks. Its mechanics are covered in statutory severance an asset buyer inherits.
The quietest requirement is the one most often missed. Section 60(1) says that during a notice period the employer “shall continue to make whatever benefit plan contributions would be required to be made in order to maintain the employee’s benefits under the plan until the end of the notice period”. Benefits continuation is itself a standard, and a clause that speaks only of pay says nothing about it.
SECTION 04 OF 08
A buyer’s instinct is arithmetic: did the employee receive the statutory minimum? In Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, the employer had continued benefit contributions and the motion judge relied on that to uphold the clause. The Court of Appeal called that an extricable error of law: “Its contributions on termination should have no bearing on whether the termination clause itself contravenes the ESA. The wording of the clause alone must be looked at to decide whether it contravenes or complies with the ESA.”
That was grounded in the statute. Because contributing to benefit plans during the notice period is itself an employment standard, and section 5(1) bars contracting out of one, later compliance “cannot cure the termination clause’s exclusion of the employer’s obligation to contribute to those benefit plans during the notice period”. The seller’s old termination letters therefore describe the seller, not the exposure; Treadstone Law reviews the contract file, not the payroll file.
SECTION 05 OF 08
In Waksdale v. Swegon North America Inc., 2020 ONCA 391, the employer conceded its for-cause provision was bad but argued its separate without-cause provision stood alone. The court disagreed: “An employment agreement must be interpreted as a whole and not on a piecemeal basis. The correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA”, adding that courts “will not enforce termination provisions that are in whole or in part illegal”.
Timing is fixed at the front end: “The court is obliged to determine the enforceability of the termination provisions as at the time the agreement was executed; non-reliance on the illegal provision is irrelevant.” The mischief follows: “Where an employer does not rely on an illegal termination clause, it may nonetheless gain the benefit of the illegal clause”, because an employee who does not know the Act may still obey an unenforceable provision.
Boilerplate does not rescue the rest: “A severability clause cannot have any effect on clauses of a contract that have been made void by statute”, citing North v. Metaswitch. Leave to appeal was refused, as the court recorded two years later.
SECTION 06 OF 08
Nearly every termination clause has a for-cause branch, and the Act does not use that expression. The exemptions are prescribed by regulation: O. Reg. 288/01 disentitles, at paragraph 3 of section 2(1), “An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” Section 9(1) repeats that ground for severance.
That is not the common-law standard. In Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451, the court described the statutory test as requiring evidence the employee was “being bad on purpose”, and held of the contract before it that “There is nothing in the Operative Just Cause Provision that limits its scope to just cause terminations for wilful misconduct.” Treadstone Law on the burden on a just-cause dismissal walks both frameworks.
It also held the motion judge erred in law by allowing the employee’s “sophistication and access to independent legal advice” to override the plain language. Seniority is not a cure; it is the aggravating factor.
SECTION 07 OF 08
The statutory ceiling is short and hard: eight weeks of notice, 26 weeks of severance. Common-law reasonable notice has no equivalent ceiling, and Wood states the consequence plainly: “Contracting out of even one of the employment standards and not substituting a greater benefit would render the termination clause void and thus unenforceable, in which case Wood would be entitled to reasonable notice of termination of her employment at common law.” A contract can still displace that entitlement, but squarely: “An employer and an employee can contract out of common law reasonable notice, but they must do so in clear and unambiguous language.”
The size of that gap is covered in common-law notice exposure in Ontario; this page supplies the mechanism. Treadstone Law takes the same fork in a void clause and ESA against common law. Do the arithmetic once, on parameters of your own choosing: an employee at $1,500 a week with twelve years of service, at a target clearing the $2.5 million payroll test, carries eight weeks of notice and twelve of severance, or $30,000. Replace the capped figure with an uncapped one and the exposure stops being a formula.
Then multiply: contracts come off a template, so a defect is shared by everyone hired on that version, and any post-closing restructuring puts the clause to work. Service is not reset by the sale either — a separate rule, covered in continuity of service under section 9.
SECTION 08 OF 08
Three requests do most of the work: every version of the template the target has used, with the dates each was in service; every signed agreement matched to its employee; and everything else each employee signed, because those can conflict. Rahman turned in part on an offer letter and an officer agreement that treated cause differently — see Treadstone Law on an offer letter conflicting with a later contract, on employment due-diligence red flags, and on ambiguous termination clauses.
Buyers commonly propose to fix this by having everyone sign a fresh agreement at closing. One that reduces entitlements generally needs fresh consideration — Treadstone Law on new contracts for retained employees and on whether a new contract resets a start date — and new paper does not reset statutory service. Where those signatures matter they are usually made a condition of closing.
Two things could not be verified. Machtinger v. HOJ Industries Ltd., the Supreme Court authority behind the presumption of reasonable notice, could not be read from a primary source: the Court’s document server returned HTTP 403 to every user agent tried, and its case page renders client-side. It is relied on only as the Court of Appeal reports it, never quoted. A 2024 Court of Appeal decision often cited here could not be retrieved either — that site served a moved-or-removed notice under an HTTP 200.
This is Ontario law; every other province has its own employment standards statute, and a federally regulated business sits outside the ESA entirely. In a share purchase the employer does not change and the contracts continue; in an asset purchase the buyer is a new employer offering new terms on service the Act carries across. Nothing above says whether a particular clause is enforceable — only what the Act prohibits. Treadstone Law’s overview of clause enforceability is a starting point.
No. The Court of Appeal has held that later compliance, such as continuing benefit contributions on termination, has no bearing on whether the clause itself contravenes the ESA. Only the wording of the clause as written when the agreement was executed decides whether it complies — what the employee actually received afterward is irrelevant to that question.
No. An employment agreement must be interpreted as a whole rather than piecemeal, so an illegal for-cause provision can void the without-cause provision too, even where the employer never relied on the illegal one. Courts will not enforce termination provisions that are in whole or in part illegal.
No. A severability clause cannot have any effect on clauses of a contract that have been made void by statute. Where a termination clause is void, the employee is entitled to reasonable notice at common law instead — a figure with no equivalent statutory ceiling.
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