THE EMPLOYERS' EDGE
De Castro v. Arista Homes Limited – Another Warning to Employers
In the recent decision of De Castro v. Arista Homes Limited, 2025 ONCA 260, the Ontario Court of Appeal upheld the motion judge’s ruling that the termination clause in the employment contract was offside of the Employment Standards Act, 2000 (the “ESA”), rendering it unenforceable and entitling the employee to common law reasonable notice.
Background
The Respondent, Ellen De Castro, was employed by the Appellant, Arista Homes Limited, for nearly five years before she was dismissed without cause. The employer relied on the termination provision in her employment contract which provided Ms. De Castro with the minimum entitlements upon termination under the ESA. Accordingly, she was paid four weeks’ salary in lieu of notice.
Ms. De Castro sued her employer for damages for failure to provide reasonable notice and brought a motion for summary judgment. Relying on the governing authority of Waksdale v. Swegon North America Inc., she argued that since the for-cause termination provision in her employment contract contravened the ESA, the entire termination provision was unenforceable.
The Ontario Superior Court of Justice agreed with Ms. De Castro’s reasoning, and she was awarded eight months’ salary in lieu of notice. The employer appealed the decision.
Issue
The central issue on appeal was whether the for-cause termination provision in the employment contract complied with the ESA. The employer conceded that if the clause contravened the ESA, then the termination without cause provision would also fail.
The Employment Contract
The with cause termination clause in the employment agreement provided the following:
If you are terminated for Cause or you have been guilty of wilful misconduct, disobedience, breach of Employment Agreement or wilful neglect of duty that is not trivial and has not been condoned by ARISTA, then ARISTA will be under no further obligation to provide you with pay in lieu of reasonable notice or severance pay whether under statute or common law.
For the purposes of this Agreement “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.
The Decision
In dismissing the employer’s appeal, the Court of Appeal’s reasoning focused on the words
“or” and “shall include” in the for-cause termination clause.
The Court of Appeal agreed with the motion judge’s interpretation that the use of the word “or” separated the first half of the termination clause from the second half. The disjunctive language signaled that termination could be either for “Cause” as defined in the agreement, or for the reasons set out after the word “or”. The clause therefore permitted termination for cause in for acts and omissions that would not justify termination under the ESA, which only allows for termination for cause in cases of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.
Additionally, the final sentence of the clause defined “Cause” by saying that it “shall include … involvement in any act or omission which would in law permit” termination without notice. The Court agreed with the motion judge’s determination that the words “shall include” suggest that the definition is not exhaustive and that circumstances other than those specified could justify termination.
Takeaways for Employers
This decision highlights the importance of carefully drafting employment contracts (and specifically termination provisions) to ensure compliance with the ESA. As we are seeing time and time again, there is no room for ambiguity when termination provisions are challenged in court.
Reach out to our team at CCPartners for any assistance in reviewing or drafting employment agreements.
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