Hiring your first employee usually happens quickly. A shop gets busy, a contract comes in, or someone you trust is available now. The new hire gets a text message with a start date, or perhaps a short offer letter copied from the internet, and everybody gets on with the job.
Years later, when that person’s employment ends, the owner may discover what that informality cost. Without an enforceable written term that limits termination entitlements, Ontario law generally implies a right to reasonable notice, which can be considerably longer than the statutory minimum. A good contract can reduce that uncertainty. A poorly drafted one can leave you with the same exposure, despite your belief that the problem has been dealt with.
This article is intended for employers of provincially regulated workplaces in Ontario. It is general information only and is not legal advice. Federally regulated employers, such as interprovincial trucking companies, are under the Canada Labour Code, which has different rules.
Timing: The Mistake That Costs the Most
Before looking at any clause, look at when the contract gets signed.
A contract needs consideration, meaning each side gives something of value. When a person accepts a job on the strength of an offer, the job is the consideration. If someone has already accepted, or has already started, and you then present them with a contract containing tougher terms, the job they already have may not count as fresh consideration. Ontario courts have refused to enforce terms in this situation.
The practical rule follows from this. Send the full contract with the offer, give the person time to read it, and get it signed before their first day of work. If you want to introduce a contract for existing employees, offer something real in exchange, such as a raise, a bonus, or a promotion, and let them get advice. The same thinking applies when you update an old contract. Simply telling staff that “everyone has to sign this by Friday” is not good enough, and it could raise further problems if the changes are significant.
You Cannot Contract Out of the ESA
The Employment Standards Act, 2000 sets a floor. A contract term that tries to give an employee less than a minimum standard is void, and if a contract’s termination clause falls below that floor, courts will generally strike the clause down. The employee is then entitled to reasonable notice under the common law.
The floor covers matters such as:
- Minimum wage, overtime after 44 hours in most jobs, and vacation pay
- Public holidays and statutory leaves
- Notice of termination or termination pay after three months of employment, up to eight weeks based on length of service
- Severance pay for those with five or more years of service, where the employer has a payroll of $2.5 million or more, or in certain mass severance situations
- Continuation of benefits during the statutory notice period
Exemptions apply to some occupations, and those details matter. Never assume, for instance, that a manager is exempt from overtime because you gave them the title, or that a salary means no overtime is owed.
The Termination Clause Deserves Your Closest Attention
Most employment litigation in Ontario is about termination clauses, so this is where drafting matters most.
An effective clause clearly limits the employee to specified entitlements on termination without cause, and it must comply with the ESA in all situations that could arise. Being compliant on the day it is signed is not enough. If it could produce less than the ESA minimum at any point, such as after the employee’s service has increased, it is at risk.
The Court of Appeal for Ontario’s decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391, remains central. It holds that termination provisions should be read together as a whole, regardless of where they appear in the contract. If one provision is unlawful, such as a clause describing termination for cause, the employer may not be able to rely on the others, even a perfectly drafted clause for termination without cause. A severability clause will not save it.
The cause clause is a frequent trap. Under the ESA regulations, an employee who is guilty of wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned does not get statutory termination pay. That standard is higher than the common-law idea of just cause. A contract that takes away all pay on termination “for cause” may therefore run afoul of the ESA if it does not preserve the employee’s statutory minimums in cases of ordinary cause.
Courts have also debated other wording, including whether phrases such as allowing an employer to terminate “at any time” or “for any reason” make a clause invalid. The Court of Appeal has held that those words do not automatically defeat a clause where the contract as a whole shows an intention to comply with the ESA, and express commitments to ESA compliance carried weight in that analysis. This area of law keeps moving, however, and small wording differences can produce different results. That is the reason to have a lawyer look at your template periodically instead of relying on one that was adequate some years ago.
If you get the termination clause right, you can often limit your cost to a known amount. If you get it wrong, a long-service employee’s claim for reasonable notice can run into many months of pay, and that often comes as a shock.
Probation Is Not What Many Employers Think
Many owners believe that an employee can be let go without any payment during a “probation period” as a matter of law. The reality is narrower. The ESA requires notice or pay in lieu once an employee has been continuously employed for three months or more. Before that point, the ESA’s notice requirements generally do not apply.
The common law is a separate issue, though. If your contract does not clearly set out a probationary term, and does not clearly exclude reasonable notice, a person dismissed in the first few weeks could still have a claim for common-law notice. A clear written clause should identify the probationary period, indicate how performance will be assessed, and say what is payable if it ends. Do not promise a probation longer than three months without getting advice about how it interacts with the ESA.
Non-Competes, Non-Solicits, and Confidentiality
Since October 25, 2021, the ESA has generally banned employers from entering into non-compete agreements with employees. A clause that stops an employee from joining or starting a competing business after leaving is prohibited, whatever its time limit or geographic scope.
There are two exceptions. One covers certain sales of a business, where the seller becomes an employee of the buyer immediately afterwards. The other covers executives, a term defined to include people holding chief executive positions, such as a president, CEO, or CFO. A “Regional Manager” or “Director of Sales” does not fit just because of the job title’s seniority.
Other restrictions remain available to protect your business, if properly drafted:
- Confidentiality clauses can protect client lists, pricing, recipes, and other non-public information during and after employment.
- Non-solicitation clauses can limit a former employee’s approaches to your clients or staff for a reasonable time. Courts will assess reasonableness, and ambiguous or overbroad wording may be struck down altogether rather than trimmed back. Be careful that the clause does not operate as a hidden non-compete.
- Intellectual property clauses should say that work product belongs to the company. Copyright in works created in the course of employment generally belongs to the employer, absent an agreement otherwise, but other rights are less automatic. A clear clause avoids an argument, particularly for developers, designers, and marketing staff.
Other Terms Worth Getting Down in Writing
Good contracts answer predictable questions before they turn into disputes. Consider covering:
- Compensation. Base pay, pay period, overtime treatment, and clear rules for commissions and bonuses. Spell out what happens to variable pay on termination, since vague wording may leave you owing it through a notice period.
- Hours and location. Include flexibility for different sites if you operate in more than one location across Peel and Halton, or require remote work.
- Temporary layoffs. In a non-unionized workplace, a layoff without a contractual right to do so can be treated as constructive dismissal, even if it fits within the ESA’s time limits. If seasonal slowdowns are part of your business, address this in writing.
- Changes to duties. Reserve reasonable flexibility, but know that a substantial unilateral change to pay or duties could amount to constructive dismissal regardless.
- Policies. Refer to your workplace policies, and describe how they may be updated, so they can be enforced.
- Company property and return of equipment. Set clear rules about laptops, vehicles, keys, and accounts when employment ends.
- Expense reimbursement and deductions. Do not assume you can deduct uniform or damage costs from pay. The ESA restricts deductions, and written authorization does not always make them lawful.
Written Information and Hiring Rules for Larger Employers
Some obligations depend on how many people you employ. These rules are separate from the employment contract, but they fit into the same hiring process.
Employers with 25 or more employees must give new hires written information before their first day of work, or as soon as reasonably possible after that if it is not practicable. The information includes the employer’s legal name and contact details, the work location, the starting wage, the pay period and pay day, and anticipated hours.
Employers with 25 or more employees must also meet rules for publicly advertised job postings. Among them, postings have to state the expected compensation or range, with a range capped in size and a carve-out for higher-paying roles, say whether artificial intelligence is used to screen or assess applicants, and disclose whether the posting is for an existing vacancy. Employers must also notify interviewed applicants of a hiring decision within a set time and keep certain records.
Those at the 25-employee level should also have written policies on disconnecting from work and electronic monitoring. The count is taken on January 1, with the policy due before March 1 of that year. Growing businesses can cross this line without noticing, so check your headcount at the start of each year.
Language, Fairness, and Getting It Signed
Many workplaces in Brampton employ people whose first language is not English, and some employers hire through family or community ties. A contract does not need to be simple to the point of being vague, but it must be understandable. An employee who did not understand a clause, felt pressured, or had no opportunity to read it may challenge it later. Ambiguity in a contract is generally read against the employer that drafted it. Give people time to review and get advice, and keep a signed, dated copy in the file.
Do not treat family members or friends as an exception. Those are often the relationships that produce the most difficult disputes when things go wrong.
Keep the Contract Alive
An employment contract is not a one-time task. Employment standards change, court decisions shift the drafting, and roles evolve. Set a reminder to review your template, say once a year, and ask a lawyer to review it after any major legislative change. Our corporate law practice and wider contract services can assist with drafting or reviewing templates, and you can reach out to the firm if an employee’s departure has raised questions about what you owe.
A contract costs a small fraction of what a wrongful dismissal claim can. More importantly, a clear document tends to make the working relationship itself clearer: people know what is expected, what they will be paid, and how things will end if they have to.