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Ontario Premier Doug Ford is tearing up a deal with the big-brewery-owned Beer Store retail chain to avoid having the province pay hundreds of millions in penalties as he seeks to fulfill a campaign promise to allow beer and wine sales in corner stores.

And owners of the beer retailer warn the battle could now be headed to court.

Mr. Ford’s Finance Minister, Vic Fedeli, introduced a bill in the Ontario Legislature on Monday that would terminate the 2015 deal signed by the previous Liberal government with the quasi-monopoly Beer Store, which is primarily owned by the foreign brewing giants behind Labatt, Molson and Sleeman and operates 445 outlets across the province. Negotiations between the government and Beer Store are expected to continue, but Mr. Fedeli is escalating the fight by giving the Progressive Conservatives the power to unilaterally transform a retail network first launched in 1927.

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The bill comes after weeks of talks and amid a public-relations battle between the government and the Beer Store over Mr. Ford’s pledge to allow beer and wine in corner stores, more grocery outlets and big-box retailers. The 2015 “master framework agreement” between the brewers and Queen’s Park was negotiated to allow the government of Kathleen Wynne to expand beer sales in just 450 grocery stores, but was meant to stay in place for 10 years. Since being elected, Mr. Ford’s government also introduced legislation that allows booze during tailgate parties at sports events, and served up “buck-a-beer” to consumers by lowering the minimum price on a bottle of suds.

The bill on beer sales came without any public warning on the same day that Mr. Ford announced a temporary climb-down in his fight with Toronto Mayor John Tory and other mayors about cuts to public health, ambulances and daycares, and after a series of polls showing sagging support for Ontario’s PC government, first elected about a year ago. The bill also came on the same day the government unveiled a bill to overhaul mental-health and addiction services, as well as lay the groundwork for joining a B.C. class action lawsuit aimed at holding pharmaceutical companies responsible for the opioid overdose crisis.

Monday’s proposed legislation on beer sales, barely four pages long, would wipe out the 2015 deal and cancel the Beer Store’s long-held exclusive right to sell beer in 12- and 24-packs in most places. Mr. Fedeli said the government plans to pass the bill before the legislature rises for the summer in two weeks. But he also suggested that the government remains open to future talks with the Beer Store on allowing corner-store sales.

Speaking to reporters, Mr. Fedeli dismissed the notion that tearing up a contract would put a chill on doing business with the province, calling it a terrible deal, and saying no other place in the world allows private brewers this kind of retail monopoly: “This is a Kathleen Wynne sweetheart deal. It is anti-competitive, and quite frankly if left alone would continue to be anti-competitive for the next six years.”

The Beer Store immediately warned it would challenge Mr. Fedeli’s move in court. In a letter dated Monday and obtained by The Globe and Mail, the Beer Store’s lawyers warn Attorney-General Caroline Mulroney and an external lawyer for the government on the file that ripping up the deal will “legislate 7,000 Ontario-based Beer Store employees out of work and cause billions of dollars in damages” as well as “result in higher costs and prices for consumers."

The letter warns that the brewers may sue Mr. Ford’s government “on the basis that the legislative process has been improperly used by third-party interests" or on the grounds that the bill is “unconstitutional and constitutes misfeasance in public office.” The Beer Store’s lawyers warn the government to preserve all records, including texts and e-mails, for a list of officials that includes Mr. Ford and his chief of staff Dean French, and including any communication with industry groups working with the government pushing for the changes, including the Ontario Convenience Store Association and the Retail Council of Canada.

Industry sources had warned that ironclad language in the Beer Store deal, signed by the previous Liberal government in 2015, would force the government to pay hundreds of millions in damages if it violated it. But constitutional law experts say it is impossible to bind a provincial government in such an agreement, as it retains its power to simply pass a law declaring any such contract void and eliminating the need to pay any compensation. However, it is regarded as an extreme move that has prompted court challenges to other governments in the past.

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Both the Beer Store and its union had recently launched ad campaigns targeting the government’s liberalization plans.

“Doug Ford promised no one would lose their jobs as a result of his policies,” said John Nock, president of United Food and Commercial Workers Local 12R24, which represents the Beer Store’s 7,300 employees. “Now he’s cancelling contracts, creating chaos and kicking good jobs to the curb.”

Mr. Fedeli’s bill comes just days after the government’s special adviser on liberalizing alcohol sales, Ken Hughes, submitted a report on the future of the sector to Mr. Fedeli. The report, released Monday afternoon just after Mr. Fedeli introduced his bill, is harshly critical of the Beer Store and the 2015 deal, which merely extended arrangements that date back decades and have been blessed by governments of every stripe.

However, the report stops short of recommending ripping up the Beer Store deal, instead urging the government to “do everything possible” under the agreement to allow beer in more outlets but also to consider “other available options” if talks fail.

The government does not need to put the bill into effect as soon as it is passed, meaning that talks could continue with the Beer Store. But with the legislature rising for the summer, the legislation clearly puts the option of completely terminating the deal on the table, if another round of talks with the Beer Store fails.

The opposition at Queen’s Park accused the government of making the Beer Store announcement to distract from its other problems.

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“This government has an obsession with alcohol ... I don’t think it is in line with Ontarians’ most important priorities: health care and education,” interim Liberal leader John Fraser told reporters.

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