Recent Trends in Contract Enforceability and Constructive Dismissal

Ontario employers continue to adapt to post-pandemic trends and developments in both contract enforceability and constructive dismissal litigation, including around return-to-office (“RTO”) protocols.

Termination Clauses

Since 2020, there have been numerous decisions of the Ontario Superior Court of Justice (“the Court”) invalidating contractual employment termination provisions on a variety of different technical grounds. Most recently, starting in 2024, multiple Ontario Judges have held that termination clauses permitting employers to terminate employment “for any reason” or “at any time” violate the Employment Standards Act (“ESA”), rendering the termination clause invalid, and resulting in the employer shouldering unexpected liability for common law “reasonable” notice or pay instead.

Recently, the Court has issued conflicting rulings on the use of “at any time” in an otherwise sound termination clause, holding that the inclusion of the phrase does not (automatically and without further consideration) invalidate the termination clause. These conflicting decisions have resulted in an appeal to the Ontario Court of Appeal, scheduled to be heard in March 2026, which will hopefully result in some judicial clarity on the issue.

Temporary Layoffs

On a related topic, where an employment contract does not expressly permit a “temporary layoff”, an employee who is temporarily laid off from their employment can claim they have been constructively dismissed, triggering employer termination obligations. The issue of an employer’s right to temporarily lay off an employee from work became a central issue of dispute during and post-pandemic, resulting in a significant amount of litigation. In this context, the Court has confirmed that a properly drafted lay-off provision in an employment contract, so long as it does not offend the temporary layoff provisions in the ESA, will permit an employer to impose a temporary lay-off without constituting a constructive dismissal.

Return-to-Office Protocol

Also, in constructive dismissal, employers have recently been challenged with the implementation of RTO protocols and employee resistance to return to pre-pandemic attendance expectations. In some cases where an employee’s refusal to return-to-office on the employer’s terms has resulted in termination of employment, the Court has found that in the absence of clear contractual terms, an employee’s permitted remote work over a period of time may become an implied term of their employment, and that changing that term may constitute a constructive dismissal.

Employer Takeaways

These trends and developments re-emphasize the importance of having employment contracts that are frequently reviewed and updated to ensure consistency and compliance with current judicial decisions and the ESA. This has been demonstrated to be of particular importance when it comes to termination clauses, temporary layoff provisions and “location of work” or “remote work” provisions and policies.

If you would like to learn more about these topics, or if it is time for a review of your employment contracts or polices, please contact any member of our Labour & Employment Group.