The information in this blog is for general informational purposes only and does not constitute legal advice. Consult a qualified attorney for advice on your specific situation. We make no guarantees about the accuracy or completeness of the information provided. Reliance on any information in this blog is at your own risk.
Drafting a legally sound employment contract is one of the most important steps an Ontario employer can take to establish a strong foundation for the employment relationship. Whether you’re hiring your first employee or expanding a growing team, a well-crafted employment agreement protects your business interests, sets clear expectations, and helps avoid disputes down the road.
However, not all employment contracts are created equal. In Ontario, employment agreements must comply with the Employment Standards Act, 2000 (ESA) and relevant common law principles. If a contract contains unenforceable terms—especially around termination—it can expose your business to significant liability. Courts have increasingly scrutinized termination clauses and other provisions, emphasizing the importance of clarity, compliance, and fairness.
In this blog, we’ll walk through the key components of a legally enforceable employment contract in Ontario. We’ll highlight common mistakes employers make, provide drafting tips, and explain how AMAR-VR LAW can help you design customized, compliant contracts that protect your business and support your team.
Why Employment Contracts Matter
An employment contract is a legal agreement between an employer and an employee that outlines the terms of employment. While not all employment relationships in Ontario require a written agreement, having one in place is highly recommended—especially if you want to:
- Limit liability in the event of termination
– - Define job responsibilities and expectations clearly
– - Establish working hours, compensation, and benefits in writing
– - Protect confidential information and intellectual property
– - Prevent post-employment competition or solicitation
Without a written contract, the employment relationship is governed by implied terms under the common law. This can result in greater obligations on the employer—particularly when it comes to termination notice or severance pay.
Example Scenario:
An Ontario tech company hires a developer without a written agreement. After two years, the company terminates the employee and offers two weeks’ pay in lieu of notice (based on ESA minimums). The employee sues for wrongful dismissal, arguing for common law notice. A court awards four months’ pay. A properly drafted contract with an enforceable termination clause could have limited this liability.
Key Elements of a Legally Sound Employment Contract
To ensure enforceability and avoid costly litigation, an employment contract should include the following core components:
Clear Identification of the Parties and Position
The contract should clearly state:
- The employer’s legal name and address
– - The employee’s name and position
– - The start date of employment
– - Whether the employment is full-time, part-time, or fixed-term
– - The probationary period (if applicable)
Be as specific as possible when describing the role, especially if job duties are tied to performance or compensation expectations.
Compensation and Benefits
Clearly set out:
- Base salary or hourly wage
– - Pay frequency (e.g., biweekly)
– - Overtime eligibility and pay (if applicable)
– - Bonus or commission structures (and whether they are discretionary)
– - Vacation entitlement and vacation pay
– - Benefits (health insurance, RRSP contributions, etc.)
Be careful with language around bonuses and commissions. If not properly framed as discretionary, they may be treated as part of compensation and factored into termination packages.
Hours of Work and Location
Specify:
- Expected working hours per week
– - Whether the employee is required to work overtime
– - Remote work or hybrid arrangements (if applicable)
– - Location of the workplace (and whether it may change)
Clarify whether the employee is entitled to overtime pay and ensure your language aligns with ESA provisions on hours of work and rest periods.
Termination Clause
The termination clause is arguably the most important—and most litigated—part of any employment contract in Ontario. A properly drafted clause can limit the employee’s entitlements to ESA minimums. An unenforceable clause, however, may result in common law notice, which is often significantly more generous.
To draft a valid termination clause:
- Clearly state that the employee will receive only the minimum notice and severance required by the ESA, not common law notice.
– - Avoid ambiguous or contradictory language.
– - Do not include any terms that violate ESA entitlements (e.g., denying benefits during the notice period).
– - Consider including a “just cause” clause, but be aware that Ontario courts use a high threshold for proving cause.
Tip:
Ontario courts have struck down termination clauses for minor technical issues or vague wording. Work with legal counsel to ensure your termination clause is enforceable and reflects current case law.
Probationary Period
A probationary period allows you to assess a new hire’s suitability. If you intend to terminate the employee during probation without notice, the contract must expressly state this and comply with ESA standards.
In Ontario, you can terminate an employee without notice within the first three months—but only if this is clearly stated in the contract.
Confidentiality and Intellectual Property
Protect your business by including:
- A confidentiality clause that prohibits employees from disclosing sensitive information during or after employment
– - An intellectual property assignment clause confirming that any work created during employment belongs to the employer
– - A non-disparagement clause that discourages reputational harm after employment ends
Restrictive Covenants (Non-Solicitation and Non-Competition)
Restrictive covenants aim to limit an employee’s actions after they leave the company. However, Ontario courts generally view non-competition clauses as unenforceable unless they are narrowly tailored and necessary to protect a legitimate business interest.Instead, use a well-crafted non-solicitation clause, which restricts former employees from poaching clients, customers, or employees for a set period of time after leaving.
Important:
Ontario’s Working for Workers Act, 2021 prohibits most non-compete agreements, except in the sale of a business or for executives.
Entire Agreement and Severability Clauses
Include clauses that:
- Confirm the contract is the entire agreement between the parties
– - Allow the rest of the contract to remain in effect if one provision is found invalid (severability clause)
– - Specify that the contract can only be amended in writing and with the consent of both parties
These clauses help reduce the risk of unintended obligations or claims based on verbal promises or outdated policies.
Common Mistakes to Avoid
Employers frequently make the following mistakes when drafting employment contracts:
- Using template contracts that haven’t been updated to reflect Ontario law
– - Including termination clauses that violate ESA minimums
– - Failing to properly define bonus or commission plans
– - Not having contracts signed before the first day of work, which can affect enforceability
– - Omitting IP and confidentiality provisions, especially for creative or technical roles
– - Relying on verbal agreements or offer letters without formalizing them in a comprehensive contract
Each of these missteps can result in legal disputes, higher termination costs, or difficulty enforcing contractual rights.
How AMAR-VR LAW Can Help
At AMAR-VR LAW, we work with Ontario businesses across industries to draft employment contracts that are clear, enforceable, and fully compliant with provincial legislation. We take a proactive, customized approach, ensuring your agreements reflect your workplace needs while minimizing legal risks.
Our legal services include:
- Drafting and reviewing employment agreements tailored to your business
– - Updating contracts to comply with changes in the ESA and Ontario case law
– - Advising on termination provisions and restrictive covenants
– - Ensuring proper use of probationary and bonus clauses
– - Providing guidance on rollout and implementation best practices
Whether you’re hiring your first employee or restructuring your workforce, we ensure your contracts support your long-term goals while respecting employee rights.
Conclusion
A well-drafted employment contract is more than a formality—it’s a vital tool for setting expectations, protecting your business, and complying with Ontario employment law. By including clear, enforceable terms that reflect your company’s needs and legal obligations, you can build strong employment relationships and avoid costly disputes down the road.
At AMAR-VR LAW, we help employers across Ontario create employment agreements that are legally sound, strategically crafted, and tailored to their workforce. If you’re ready to strengthen your hiring practices, protect your business, and stay onside with the law. Contact us today for a consultation to learn how we can help.
Frequently Asked Questions (FAQs)
- Is a written employment contract required by law in Ontario?
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No, a written employment contract is not legally required in Ontario. However, without one, the employment relationship is governed by common law, which often provides employees with more generous entitlements—especially regarding termination notice. A well-drafted written contract can help employers define roles, limit liability, and reduce the risk of future disputes.
– - What makes a termination clause enforceable under Ontario law?
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To be enforceable, a termination clause must clearly limit the employee’s entitlements to the minimum standards under the Employment Standards Act (ESA) and cannot contract out of any ESA rights. Courts frequently strike down clauses that are vague, ambiguous, or fail to meet statutory minimums—resulting in common law notice obligations, which can be much more costly.
– - When should an employment contract be signed to ensure enforceability?
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Ideally, an employment contract should be signed before the employee’s first day of work. If the contract is presented after employment has begun, it may not be enforceable unless fresh consideration (e.g., a signing bonus or promotion) is provided. Employers should always ensure contracts are finalized and signed before work commences.
– - Can employers still include non-compete clauses in Ontario contracts?
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Generally, no. Ontario’s Working for Workers Act, 2021 prohibits most non-compete clauses, except in limited cases such as the sale of a business or for executive-level employees. Employers should instead use well-crafted non-solicitation clauses to protect their client base and workforce without violating the law.
– - How does AMAR-VR LAW help Ontario employers draft effective employment contracts?
–AMAR-VR LAW provides Ontario employers with tailored legal guidance to draft clear, enforceable, and ESA-compliant employment agreements. Our services include reviewing existing contracts, crafting customized clauses (such as for bonuses, termination, and IP), ensuring compliance with current legislation, and advising on rollout best practices to reduce legal risk and support your business objectives.