2025 Year in Review Part One: The Unsettled State of Canadian Employment Law

Welcome to Part One of our 2025 Employment Law Year in Review.

TLDR: The Unsettled State of Canadian Employment Law in 2025

The Canadian employment law landscape remains highly uncertain, driven by continuous legislative evolution (like Ontario’s Working for Workers Act) and dramatic shifts in case law:

• Termination Clauses: Ontario courts issued conflicting decisions on the wording “at any time”, making it a critical point of uncertainty until the Court of Appeal’s expected clarification in early 2026. BC courts, however, rejected Ontario’s “overly technical” approach. Best practice remains to keep clauses concise, and to mirror the gold standard in Datastealth.
• Constructive Dismissal: Unilateral, substantial changes to fundamental terms (like a major pay cut or creating a hostile work environment) were found to constitute constructive dismissal, often resulting in significant notice periods and aggravated damages.
• Mitigation: The duty to mitigate is key, but it remains difficult and costly for Employers to establish a failure to mitigate. As the decisions we discuss show, proving insufficient job search effort may often yield negligible cost savings.
• Duty to Accommodate: Employees are entitled to reasonable accommodation, but not to their preferences. They must also meaningfully participate in the process; employers have the right to request sufficient information to assess the request and determine what is reasonable.
• Post-Termination Compensation: Clear contractual language is essential to limit post-termination compensation, including bonuses and equity. Notably, RSUs were confirmed not to be “wages” under the Ontario ESA, allowing their forfeiture immediately upon termination, even if the termination clause was unenforceable.
• Damages: Courts awarded significant punitive damages for bad-faith conduct, and as well as damages for human rights breaches. However, damages for human rights breaches remain comparatively low.
• Notice Periods: Courts continue to award longer notice periods, with short-service employees consistently seeing awards that match or exceed their tenure.
• Just Cause: Successful assertions of just cause involved cases where the employee was dishonest, unapologetic, or unremorseful when confronted, demonstrating that the employment relationship was irreparably damaged.
• Return to Office: Employers are recalling employees back to the office; however unilateral RTO mandates risk constructive dismissal claims if remote work was an explicit, implied, or accrued term of employment.

Introduction

You might think that employment is such a fundamental aspect of all our lives that the laws regulating it would be well-settled by now, but you’d be mistaken. There is arguably more uncertainty than ever, and there is never a time when we don’t see changes – some marginal and some monumental. Legislation continually evolves, as seen in Ontario’s Working for Workers Act reaching its seventh version, and case law changes dramatically, often driven by social shifts like remote work or evolving standards for accommodation and harassment.

Without further ado, below we cover the top decisions and developments in Canadian employment law from the past year. We also recorded a special two part episode of Fire Away, which covers much of the content in this post and Part Two .

Strong employment agreements are the single best way employers can protect their interests, and the termination clause is arguably the most important element. However, the judicial approach to these clauses remains highly contentious. This is particularly true in Ontario, where our courts seem to be open to finding almost any reason to invalidate a termination clause.

The “At Any Time” Controversy

Clauses which purport to allow an employer to dismiss the employee “at any time”, so long as they provide sufficient notice or pay in lieu have been the norm for years, but  became a central issue in 2025, leading to conflicting Superior Court decisions. These decisions built on 2024’s most controversial decision, Dufault v The Township of Ignace, which ruled that the wording “at any time” had the potential to breach the Employment Standards Act (the “ESA”), making it offside language.  

Interestingly, these decisions building on Dufault all revolve around clauses that would seem to be entirely innocuous; these clauses are pretty standard and we would not have thought twice about them until recently. A termination clause stating that the employer can dismiss the employee without cause at any time, so long as the employer provides the employee with their entitlements under the ESA, should be enforceable. Indeed, such language was affirmed to be acceptable in a British Columbia decision discussed below. However, as the Dufault case law shows, in Ontario the wording “at any time” remains problematic.

Early on in 2025, Baker v. Van Dolder’s Home Team Inc. followed Dufault and struck the termination clause at issue, affirming that “at any time” was fatal because employers do not have absolute discretion to dismiss employees. While the ESA does curb employers’ discretion, the reasoning in Baker and Dufault is controversial because the ESA does not prohibit dismissals on the basis of timing.

In the summer, we saw what appeared to be a correction. In Li v. Wayfair Canada ULC. and Jones v. Strides Toronto the Superior Court ruled that “at any time” on its own was not problematic, but the wording “sole discretion” breached the ESA. This correction was short-lived; in Chan v. NYX Capital Corp. the Superior Court once again struck a termination clause merely for the “at any time” wording.

The Li, Jones, and Chan decisions created conflicting case law and uncertainty with respect to whether “at any time” is offside. Thankfully, clarification may soon arrive –  the Ontario Court of Appeal will hear the appeals of Li and Baker together on January 16, 2026.

Enforceable Language

It’s not all bad news for termination clauses, however. In 2025 we also saw the Court of Appeal uphold the trial decision in Bertsch v. Datastealth Inc., which confirmed that even in 2025, it is possible to have an enforceable termination clause. The clause avoided language that could potentially breach the ESA while clearly and unambiguously contracting out of common law, expressly stating that the employee’s entitlements upon dismissal were limited only to statutory minimums required by the ESA. The Court of Appeal’s decision essentially stamped a seal of approval on the Datastealth clause, making it the gold standard (for now). Employers are well advised to mirror the language in their ESA-only termination clauses.

As always, we recommend that employment agreements be reviewed regularly, as the law can change quickly. Datastealth is the gold standard, but that may not be so in 2026. At this point, our evergreen advice is to keep termination clauses concise, and to avoid any extraneous language (such as “sole discretion” and “at any time”) that could be interpreted as having the potential to breach the ESA.

Open Season: Coming to a Jurisdiction Near You?

We often comment that in Ontario, it is open season on termination clauses. In 2025, we saw two big decisions finding a termination clause unlawful: one from Nova Scotia and the other involving a federally-regulated workplace. We also saw a decision from British Columbia where a clause was upheld, with the court expressly commenting that it took a different approach to interpretation than Ontario courts. While it may not be open season elsewhere, these decisions illustrate that case law from Ontario may be impactful in other jurisdictions.

Death By A Single Comma

If you’ve ever rolled your eyes at Oxford comma debates, in Brocklehurst v. Micco Companies Limited, the Supreme Court of Nova Scotia issued a friendly reminder that punctuation indeed matters. The termination clause at issue purported to limit the employee’s entitlements to the statutory minimums; the sued for common law damages arguing that the clause was ambiguous. The court agreed, and struck the clause upon applying Waksdale and Datastealth.

The relevant part of the clause reads as follows:

“…only such minimum notice of termination, or pay in lieu thereof, and severance pay (if applicable) to which you are entitled under the Nova Scotia Labour Standards legislation.”

The court found that the clause did not clearly contract out of common law, because the comma placement arguably meant that the phrase “to which you are entitled under the Nova Scotia Labour Standards legislation” only applied to “severance pay” and not to “minimum notice of termination.” It was also an issue that the clause did not properly reference the applicable Nova Scotia employment statute, merely making reference to “legislation.” Finally, the clause referred to “severance pay”, which is not a statutory term in Nova Scotia, creating further ambiguity. Therefore, the employee was awarded eight months’ pay in lieu of notice; he had just over eight years of service. We discussed this decision in detail on our blog.

Defining “Just Cause” is a Lost Cause

While “just cause is not a lost cause,” trying to define it in a termination clause usually is. Courts have repeatedly held that employers cannot contractually expand the common law meaning of just cause. Historically, this has been an issue in Ontario, where the ESA provides a statutory standard which is more stringent than just cause (“wilful misconduct”); an employee dismissed for cause may still be entitled to ESA minimums. Hence, expanding the definition of cause is a surefire way to breach the ESA.

This was the issue in Ghazvini et al. v. Canadian Imperial Bank of Commerce, with the twist being that the employer was a bank and thus subject to the Canada Labour Code (“CLC”) rather than the ESA. The termination clause here expanded the definition of just cause, lowering the legal standard. While the CLC does not define just cause, the court held that the employer altering the definition of just cause contracted out of the CLC. The court struck the clause, applying Waksdale, and awarded the employee seven months of reasonable notice; he had just over four years of service. We discuss this decision in detail on our blog.

Shots Fired from British Columbia

In Egan v. Harbour Air Seaplanes LLP the BC courts rejected Ontario’s “overly technical” tendency to scrutinize termination clauses for any possible ambiguity or breach. While Ontario courts often invalidate clauses for seemingly innocuous language, such as “at any time”, the court in Egan used a “practical and common-sense” approach to find a statutory minimums clause containing the wording “at any time” enforceable.

The court emphasized that proper contractual interpretation should focus on the true intentions of the parties rather than “disaggregating words” to find ambiguity. Ultimately, this decision suggests that BC courts are unwilling to strike a clause simply because of an unnecessary phrase if there is no actual breach of employment standards.

A constructive dismissal occurs when an employer unilaterally makes a substantial change to a fundamental term of the employment agreement, without having the right to make that change. Common changes include reducing pay, modifying duties, and changing reporting structures. These changes can make employees feel like they are being sidelined, leading to claims of constructive dismissal.

As the decisions we cover here show, finding constructive dismissal is never clear cut. Our courts highlight that whether a change constitutes constructive dismissal, or not, is a highly fact specific exercise.

The Bait and Switch

In Lachapelle v. St. Laurent Automotive Group Inc., a star car mechanic was lured back to his former employer with a premium compensation package, only to be laid off at the outset of the pandemic, then recalled under a significantly inferior “pooled sales” structure. The court ruled that rejecting this substantial pay cut was reasonable, finding the employee was constructively dismissed and awarding him seven months of notice.

The Inspector’s Hostile Ride

In Kennedy v. Kingston Area Taxi Licensing Commission, after 19 years of positive feedback, a respected Taxi Inspector/General Manager suddenly found himself the target of micromanagement, public belittlement and a hostile work environment under new leadership. The employee complained and there was an investigation, but the findings and recommendations were not shared with the employee or implemented. The employer escalated matters by attempting to impose a new employment contract that stripped termination entitlements down to ESA minimums. The employee refused to sign and went on stress leave; in response the employer seized his equipment and immediately posted an opening for his position. The court strongly condemned this conduct, finding that the sudden shift from positive to negative feedback strongly supported that there was a hostile work environment, and that the employee was constructively dismissed. The court awarded the employee a substantial 24-month notice period along with $25,000 in aggravated damages.

The Cat’s Escape and the Vet’s Ultimatum

In Poesl v. Sharon Veterinary Clinic Professional Corporation a client’s cat escaped, causing the client to make several threats against the clinic. The employer took reasonable security steps, but the employee advised that she would not return to work until the client was issued a formal termination letter. When the clinic hesitated to send the letter, the vet declared she wouldn’t be “coming back.” The court found the vet’s demand was unreasonable and treated her refusal as a de facto resignation. Accordingly, there was no constructive dismissal. This decision confirms that an employer isn’t legally required to meet an employee’s unreasonable preconditions for returning to work.

As these decisions illustrate, constructive dismissal can arise when there are unilateral changes to fundamental terms of employment, such as to an employee’s compensation, or an unsafe work environment. Even where no constructive dismissal is found, these claims are costly to defend against. When we work with employers, we recommend implementing strong contracts and policies, as these can effectively address making changes, and dealing with employees on unauthorized absences.

When employment is terminated, the entitlement to notice or compensation is meant to be a bridge to the employee’s next job. This entitlement is subject to the employee’s duty to mitigate, which requires them to make reasonable efforts to look for a similar position in terms of skill, status, location, and compensation. This creates several questions such as, when exactly is this duty triggered, how much effort is required, and does the employee have to accept a similar position?

Never Getting Back Together… Unless?

In May, the Court of Appeal for Manitoba confirmed that sometimes, an employee basically has to get back together with their ex-employer in order to mitigate.

In Brown v. General Electric Canada Inc., the Court of Appeal of Manitoba clarified that an employer can offer an employee a comparable new job before their old job has gone away. Here, the employee’s division was sold to another company, which offered him essentially the same position. The employee discussed staying on with the purchaser employer, ultimately rejecting the offer. The sale closed, and the employee sued the vendor employer for notice. The court ruled that turning down an essentially identical position following the sale of his division was a failure to mitigate, thereby negating his claim for $760,000.00 in notice entitlements. We discuss the Brown decision in detail on our blog.

It’s About Sending a Message

The decision in Hill v. Canyon Dental Center confirms that establishing a failure to mitigate is an uphill battle for employers, and not always worth the effort. Despite a long-service employee applying to only 19 positions over a year and ignoring 150 comparable openings, the court only reduced her 10-month notice entitlement by two months. Because the employer’s “victory” resulted in a mere $2,000 in savings, the case highlights that the legal costs of proving insufficient mitigation often outweigh the actual financial recovery.

The upshot is that while Brown shows that there can be a lot to be gained by establishing a failure to mitigate in some cases, Hill suggests that in most cases, it may not be worth the effort. We always encourage our employer clients to consider a strategic approach and engage in a cost-benefit analysis at each step of the process. In some cases, offering the dismissed employee their job back may be a strategic approach.

 Although employers have a duty to accommodate employees’ human rights needs up to the high threshold of undue hardship, accommodation is a two-way street. The accommodation process involves procedural and substantive elements, both requiring cooperation from the employer and employee seeking accommodation. Employees are not entitled to impose their preferences or their doctor’s recommendations. Employers are entitled to assess whether there is a need for accommodation and then determine a reasonable form thereof; they don’t necessarily have to go with the employee’s first choice.

In Karley v. Waterloo District School Board, the Human Rights Tribunal of Ontario (the “HRTO”) confirmed that an employee is not entitled to perfect or preferred accommodation, only to reasonable accommodation. Here, the employee alleged that it was discriminatory for the employer not to schedule her on morning shifts, instead implementing a gradual return to work on evening shifts, which she usually worked. Her argument was based on an independent medical examination recommending she work morning shifts. The HRTO found that there was no failure to accommodate because the issue of morning shifts was a preference, not a need. 

In Wicik v. Sunnybrook Research Institute, an employee who had been on paid medical leave for 14 months alleged a failure to accommodate when the employer asked her to return to work. The employer discussed the situation with the employee, requested medical documentation and updates, and ultimately confirmed via medical examination that she was able to return to work. The employer then offered two suitable alternate positions. The employee refused to return to work because she preferred to remain on leave. The HRTO found that the employer satisfied its duty to accommodate by fulfilling both the procedural duty and the substantive duty; offering reasonable accommodation is sufficient even if it does not match the employee’s preferences.

In D’Arienzo v. Toronto Transit Commission, the HRTO found that the termination of a maintenance supervisor who failed to meaningfully participate in the accommodation process after a back injury was not a failure to accommodate. Despite being offered a return to work plan with modified sedentary duties, the employee claimed he was “totally disabled” and refused to work, a claim disproved by the employer’s surveillance evidence. The dismissal was justified due to dishonesty and his refusal to cooperate with the employer, highlighting that employees must actively engage in the process.

Damages

Many employers assume that employees are only entitled to their base salary, and that including wording such as “you must be actively employed” is sufficient to save them from having to pay bonuses or commissions post-termination. To their chagrin, the reality is that post-termination compensation can only be limited with clear contractual language and an enforceable termination clause (e.g.: the employer does not attempt to contract out of employment standards legislation).

When a termination clause is unenforceable, common law notice applies, meaning damages must include all compensation the employee would have received had they remained employed, including salary, benefits, bonuses, and equity-based compensation like Restricted Share Units (“RSUs”).

In Wigdor v. Facebook Canada Ltd. the court confirmed that RSUs can still be forfeited via clear contractual language. Because the court determined that RSUs are not “wages” under the ESA, the employer was not legally required to maintain their vesting during the statutory notice period. This decision allows companies to contractually exclude equity-based compensation immediately upon giving notice—a right that does not apply to compensation considered “wages”, which must be continued until the statutory notice period concludes.

The Facebook decision clarified a relatively unsettled area of law regarding whether stock options or RSUs must be extended during a statutory notice period. We expect further guidance from the Court of Appeal; the anticipated 2026 appeal decision should provide much-needed clarity on this issue, and we will be closely monitoring its outcome.

In addition to damages for wrongful dismissal, courts and tribunals can award additional damages, such as general damages for injury to dignity, feelings, and self-respect, or punitive damages to punish egregious employer conduct. These awards are rare and reserved for exceptional circumstances, but two recent cases from this year provide noteworthy examples and offer insight into how courts are approaching these types of damages.

In Tompkins v. Peninsula Grill the HRTO found a blatant Human Rights Code violation after text messages proved an employee was fired specifically for attending a medical appointment. Despite this clear breach, the tribunal awarded a modest $407 for lost wages and $15,000.00 in general damages for injury to dignity. This decision underscores that even in cases of clear violations, the HRTO typically exercises restraint, granting relatively low compensation compared to the severity of the breach.

In Carroll v. Oracle Canada ULC the court awarded $57,740.55 in punitive damages, matching the exact amount of commissions the employer withheld from the employee for eight months. The employer also falsely claimed missing information delayed the payment while simultaneously trying to enforce an invalid termination clause it knew to be unenforceable. The court viewed this as an attempt to pressure a vulnerable employee and a breach of the duty of good faith. This decision highlights that larger withheld sums often lead to higher punitive awards to ensure accountability for bad-faith conduct.

These two cases show two very different approaches to additional damages awards, and two very different ranges of what the quantum of these awards can be.

Terminations

Terminations represent a significant source of organizational liability. Common assumptions regarding notice entitlements, such as the “one week per year” rule, are myths.

Courts determine notice periods based on multiple factors. While generally capped at 24 months, awards can reach 26 to 30 months in exceptional cases, particularly for long-serving, older employees with non-transferable skills. A notable and continuing trend in 2025 involves disproportionately long notice periods for short-service employees in senior roles or those near retirement age, sometimes resulting in notice that exceeds their actual tenure. Furthermore, as discussed above wrongful dismissal damages encompass total compensation, including base salary, benefits, bonuses, and equity-based incentives like RSUs

Unlike terminations without cause, which always require severance, terminations for just cause disentitle employees from these payments, except for those covered by the Ontario ESA. While the legal threshold is high, “just cause is not a lost cause,” especially when an employer’s position is strengthened by the employee’s response after being confronted. 

In cases where just cause is upheld, employees are consistently found to be dishonest, unapologetic, or unremorseful when confronted. This conduct addresses the central question for the courts: whether the employee’s actions have irreparably harmed the employment relationship.

In Canada Post Corp. v Canadian Union of Postal Workers, the employee was confronted for not delivering flyers. He admitted to doing so, calling the task “stupid” (among harsher language). The termination was upheld, partly because of his previous suspensions, and due to his failure to take responsibility and express any remorse for his conduct.

In Fenerty v Sobeys Capital Incorporated, the employee was accused of making sexual comments towards a coworker. He attempted to excuse his behaviour, taking the position that it was acceptable because the employer sold adult magazines. Given his lack of remorse, his employment was terminated; the termination was upheld because the employer showed that the employee had received harassment training, and had previous disciplinary history. The employment relationship was shown to be damaged beyond repair. 

In Elk Valley Resources Inc. v. United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, Local Union No. 934, an employee working in a mining site, in a safety-sensitive position, was dismissed for cause. He failed to use wheel locks on a 450lb truck, resulting in the truck rolling down hill, which created a substantial safety hazard. When confronted, he was dishonest, offering shifting explanations. The employer concluded that he deliberately failed to place the wheel locks. The termination was upheld as the employee’s conduct showed he could not be trusted to be safe.

Finally, in Abbasbayli v. Fiera Foods Company, the employee was caught swapping time cards with a colleague and engaging in time theft. The employer investigated and found footage of the employee, catching him red-handed. The employer confronted the employee three times, and each time the employee denied the allegations, claiming that the footage was fake. The termination was upheld based on the employee’s failure to take accountability, dishonesty, and lack of remorse. His conduct clearly showed that trust could not be restored.

Fiera is a great example of the value of investigations. While investigations are not legally required in the context of terminations for just cause they are highly recommended prior to asserting cause and terminating the employment relationship.

A major trend in 2025 was that employers continued calling employees back to the office. The major Canadian banks made the headlines after they began mandating returns to the office (e.g., four days in-office), shifting away from long-term remote work. This has led to ongoing controversy and disputes; employers often assume they can dictate where employees work and employees often believe working from home is a legal right. Who is right will depend on the circumstances and is generally governed by contract and past practice; the situation is far from clear cut and is not the same for every workplace or even every individual within a workplace. For example, an employee hired in 2023 that has never set foot in the office may have more of a right to work from home than someone who always worked in the office before the pandemic and has been clearly warned that the employer maintains the right to bring them back.

Although each situation must be assessed individually, generally the employment contract is fundamental to this issue: if remote work became an implied term or was explicitly agreed upon, a unilateral mandate to return risks a constructive dismissal claim. Employees may legitimately refuse a return based on a need for human rights accommodation but a personal preference is insufficient.

Until Next Time

We will discuss return to office mandates in greater detail, as well as legislative updates, best practices, and what to expect in 2026, in Part Two of our Year In Review. We discussed all the topics in Parts One and Two of our Year in Review on Fire Away, so be sure to tune in for all your employment law podcast needs!