Saad Mirza
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April 13, 2025
Ontario Court of Appeal Confirms Illegality of Termination Provision: Lessons from De Castro v. AristaHomes Limited
Termination clauses in employment contracts are often the subject of intense scrutiny in Ontario courts, and the recent decision in De Castro v. Arista Homes Limited (2025 ONCA 260) reinforces this trend. This case serves as a reminder of the importance of drafting termination provisions that strictly comply with the Employment Standards Act, 2000 (ESA), and highlights how courts continue to favor interpretations that protect employee rights.
Background of the Case
The dispute arose when Ellen De Castro, a long-time employee of Arista Homes, challenged the enforceability of her employment contract’s termination clause after being dismissed without cause. The clause stated:
“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.”
Arista Homes argued that this language could be interpreted to align with ESA standards. However, the trial judge found otherwise, ruling that the clause violated the ESA by broadening the definition of “cause” beyond statutory limits.
Specifically, the ESA permits termination without notice only in cases of wilful misconduct, disobedience, or wilful neglect of duty—a narrow standard designed to protect employees from arbitrary dismissal.
We’ve seen similar cases where employers attempted to stretch the definition of “cause” to include vague or overly broad grounds for termination. In one instance, an employer included “failure to meet performance metrics” as grounds for dismissal without notice. This language was deemed unenforceable because it failed to meet the ESA’s strict criteria for cause.
Court of Appeal Decision
The Ontario Court of Appeal upheld the trial judge’s decision, confirming that the termination clause was unenforceable. The court emphasized two key principles:
1. Strict Compliance with ESA Standards: Employment contracts cannot broaden grounds for termination beyond those permitted by the ESA. Any attempt to do so renders the clause void.
2. Interpretation Favoring Employees: Employment contracts are interpreted differently than commercial agreements due to inherent power imbalances between employers and employees. Ambiguities are construed in favor of employees to uphold the ESA’s remedial purpose.
This approach aligns with our experience representing employees in wrongful dismissal claims. Courts consistently prioritize employee protections when interpreting ambiguous or non-compliant clauses—often awarding damages based on common law notice rather than statutory minimums.
Key Legal Principles Reaffirmed
The De Castro decision reinforces several important legal principles that employers and employees alike should understand:
• Termination Clauses Must Adhere to ESA Standards: Employers cannot use language that expands “cause” beyond what is defined under the ESA. For example, adding terms like “breach of employment agreement” or “failure to meet expectations” risks invalidating the entire termination provision.
• Ambiguities Favor Employees: When a contract is unclear or overly broad, courts will interpret it in a manner that protects employee rights under both statutory and common law frameworks.
We’ve helped clients navigate disputes involving ambiguous termination clauses. In one case, an employee was dismissed under a clause that referenced “dishonesty,” but failed to specify whether this dishonesty met the ESA’s standard for wilful misconduct. The court ruled in favor of our client, awarding them common law damages instead.
Implications for Employers and Employees
The De Castro ruling carries significant implications for both parties:
• For Employers: Drafting enforceable termination clauses requires precision and strict adherence to ESA standards. Overly broad or ambiguous language can lead to costly litigation and exposure to common law damages.
• For Employees: Be vigilant about unenforceable clauses in employment contracts. If your contract contains language that appears overly broad or vague, you may be entitled to more substantial compensation upon dismissal.
The De Castro decision underscores why employers must exercise caution when drafting termination provisions—and why employees should seek legal advice when facing dismissal under questionable clauses.
Author: Saad Mirza
I’m Saad Mirza, the founder of Thrive Law, a employment law firm dedicated to helping employees across Ontario navigate challenging job terminations and workplace issues.