“Incorporation by reference” is safe for now in Ontario

The Court of Appeal for Ontario recently issued a decision that is good news for the enforceability of many Ontario employment contracts. In Bertsch v. Datastealth Inc., 2025 ONCA 379 the court rejected an attack on one of the most common employment contract drafting techniques – “incorporation by reference.”

A common drafting technique

“Incorporation by reference” means defining contractual rights and obligations by referring to some other document. For example, a contract might state:

• “The employee will be paid overtime in accordance with the minimum requirements set out in the Employment Standards Act, 2000.”
• “The employee’s job duties will be those set out in the 'Job Description' attached as Schedule A to this Agreement.”

These are examples of incorporating information set out in another document as binding contract terms.

One of the most common applications of incorporation by reference in Ontario employment contracts is in termination clauses. Contracts will often define an employee’s termination entitlements by directly referencing the Employment Standards Act, 2000 (ESA), instead of exhaustively reproducing those minimum ESA requirements line-by-line in the contract. 

There are two primary benefits to doing so:

• Brevity. The parties can define a large set of termination entitlements, including notice of termination or pay in lieu, severance pay, and continued benefits contributions, through brief reference to the ESA, instead of exhaustively reproducing those minimum ESA requirements line-by-line in the contract.
• Compliance. The parties can prevent errors or ambiguities that might accompany lengthy drafting by a simple reference to the statute. An error or ambiguity that might be interpreted as contracting out of the ESA will void all termination provisions in the contract. Preventing such mistakes is critical to contract drafting.

The latter benefit, ESA compliance, makes incorporation by reference attractive to Ontario employment contract drafters. Ontario courts regularly strike out termination clauses that contain minor ambiguities surrounding ESA compliance. An effective way to prevent that outcome is to state plainly the parties will comply with the ESA. 

The “ordinary person” challenge in Bertsch

While the appeal in Bertsch did not expressly reference the terminology of “incorporation by reference,” this drafting technique is at the heart of the case. The termination clause in issue stated in part:

“…If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the Ontario Employment Standards Act, 2000 and its Regulations, as may be amended from time to time (the “ESA”)…”

This portion of the termination clause incorporates ESA minimum termination entitlements as the employee’s only entitlements on a termination either with cause or without cause.

In Bertsch, a terminated employee claimed wrongful dismissal. The employee argued the termination clause in issue was ambiguous and might be interpreted as contracting out of the ESA. The specific ambiguity that was advanced is not important for this update. For our purposes, the key argument against enforceability was that an “ordinary person,” untrained in law, might misunderstand the meaning of the clause, allowing an employer to terminate that person’s employment without full ESA entitlements. 

In other words, if a contract states “you will receive your minimum entitlements under the ESA,” and an “ordinary person” does not know what is in the ESA, then an ordinary person might believe any possible interpretation of the contract – even one that deprives such person of the rights guaranteed in the ESA. Following this argument, any use of incorporation by reference in a termination clause to comply with the ESA might be unenforceable because an ordinary person might believe an unlawful interpretation of the clause.

In Bertsch, both the motion judge and Court of Appeal rejected this position. The Court of Appeal clarified that employment contract enforceability does not turn on the interpretation of an “ordinary person,” but on how the contract can be “reasonably interpreted.” While a court will be vigilant for ambiguity – multiple reasonable interpretations – an ambiguity requires more than the “mere existence of competing interpretations.” If the only reasonable interpretation of the clause is lawful, the clause is lawful. In this case, when reasonably interpreted the termination clause did not depart from standards guaranteed by the ESA, and was therefore enforceable.

Takeaways

The Court of Appeal’s decision in Bertsch confirms the proper approach to interpreting a termination clause is to determine whether there is a reasonable interpretation other than lawful compliance with the ESA. However, the perspective of an “ordinary person” does not determine what constitutes a reasonable interpretation. Instead, we must give effect to the words of the clause, and their meaning in law.

The end result is incorporating the ESA into employment contracts by reference is still a safe and effective method for drafting employment contracts. While drafting enforceable termination clauses still requires specialized wording and careful attention to detail, employers need not worry that direct reference to the ESA somehow undermines their contracts.