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.
Landing your first customers feels great; hiring your first employees feels real. But adding staff in Ontario triggers a web of legal obligations that many founders underestimate. A mis-step—misclassifying a worker, paying below statutory minimums, or mishandling an early termination—can balloon into government audits, fines, or wrongful-dismissal lawsuits that drain runway. The good news: a handful of straightforward employment-law building blocks will keep your startup compliant and your culture on track.
Understand the Employment Standards Act (ESA) Baseline
Ontario’s Employment Standards Act, 2000 (ESA) sets non-negotiable minimums for most non-union employees:
- Minimum wage (currently $17.20/hour for general workers as of October 1, 2025).
– - Hours of work and overtime – Maximum 48 hours/week unless employees sign an ESA-compliant excess-hours agreement approved by the Ministry. Overtime (1.5×) kicks in after 44 hours.
– - Vacation entitlement – Two weeks (4% of gross wages) after < 5 years of service; three weeks (6%) thereafter.
– - Public holidays and statutory pay – Ten provincial holidays with complex formulas for entitlements.
– - Leaves – Pregnancy, parental, sick, family responsibility, and now the new remote-work leave (up to 17 weeks) introduced in 2024.
Start-up tip: You cannot contract out of ESA minimums. Any agreement that does so is void and can trigger ESA complaints.
Draft Clear, ESA-Compliant Employment Contracts
A written employment contract delivered before the first day of work sets expectations and limits future liability. Key clauses:
- Position and duties – Tie tasks to business needs; broad flexibility clauses help if roles evolve.
– - Hours and location – Note any remote-work expectations.
– - Probationary period – ESA allows termination without notice (or pay in lieu) in the first 3 months, but only if the contract expressly says so.
– - Termination provisions – Limit severance to ESA minimums or modestly above; language must be precise after a series of 2020-2023 Ontario Court of Appeal cases (e.g., Waksdale v. Swegon).
– - Intellectual-property assignment and confidentiality – Critical for tech start-ups; specify that all IP created “in the course of employment” vests in the company.
– - Restrictive covenants – Non-solicit is generally enforceable (12–24 months); non-competes are largely banned for non-executives under 2021 legislative changes.
Have a lawyer vet the template once; re-use it for subsequent hires with role-specific schedules.
Employee vs. Contractor: Classify Carefully
Early-stage companies love “contractors” for flexibility, but CRA and the Ministry of Labour scrutinise gig labels. Misclassification can trigger:
- Retroactive payroll taxes (CPP, EI, EHT).
– - ESA liability for unpaid vacation and overtime.
– - WSIB premiums and penalties.
Tests focus on control, tools, chance of profit/risk of loss, and integration. If your worker has set hours, uses your equipment, and represents your brand, they are probably an employee. When in doubt, default to employee status or seek a ruling.
Register Payroll and Statutory Remittances
Before issuing salaries, you must:
- Open a CRA payroll account – Remit source deductions (income tax, CPP, EI) on the 15th of the month following payroll.
– - Employer Health Tax (EHT) – First $1.2 million of annual Ontario payroll is exempt; register once you exceed it.
– - WSIB – Mandatory for most sectors; tech “software design” was added in 2024. File Form 7 within 10 days of a workplace injury.
Late remittances expose directors to personal liability—even if you resign later.
Mandatory Workplace Policies and Postings
Ontario requires even micro-employers to maintain:
- Occupational Health and Safety Act (OHSA) policy – Review annually; train staff.
– - Workplace violence & harassment policy – Post it prominently and update every 12 months.
– - Accessibility for Ontarians with Disabilities Act (AODA) policy – Train employees on accessible customer service if you sell to the public.
– - ESA Poster – Latest version must be displayed or distributed electronically within 30 days of hiring.
Digital workplaces can satisfy “posting” by placing documents on an intranet and emailing links.
Develop a Simple Employee Handbook
Beyond mandatory policies, a concise handbook covering vacation requests, remote-work guidelines, expense reimbursement, and device-use expectations saves one-off founder approvals. Keep it under 20 pages; link to full policies where needed. Include a “policies may change” clause to reserve flexibility.
Protect Confidential Information and IP
Use a standalone Proprietary Information and Inventions Agreement (PIIA) or embed equivalent clauses in the contract:
- IP assignment – All inventions, improvements, software code belong to the company.
– - Moral-rights waiver – Avoid later claims over code snippets or creative assets.
– - Non-disclosure – Survives termination.
– - Return of property – Laptops, source code, and credentials on exit.
Investors and acquirers routinely flag missing IP assignments as a valuation discount.
Offer Equity the Right Way
Stock options motivate talent, but must comply with:
- Corporate authorisations – Board and, if share classes vary, shareholder approval.
– - Income-tax timing – Options granted at a discount to fair market value can trigger immediate taxable benefits. Use third-party valuation reports or safe-harbour methods.
– - Termination provisions – Options typically expire 90 days post-employment; make that clear.
Seeking CRA’s new Deferred Taxation Agreement (2025) allows eligible employees to defer option-tax events until liquidity—helpful for cash-poor start-ups.
Plan for Terminations Before They Happen
Even if cultural fit is great, not every hire works out. Best practices:
- Probation reviews at 60 days – Provide feedback and decide early.
– - Record performance issues – Objective notes create evidence if termination is challenged.
– - Pay correct notice – ESA sets minimum weeks; common-law notice can be far higher unless an enforceable contract clause limits it.
– - Release agreements – Exchange enhanced severance for a waiver of claims; ensure adequate independent-legal-advice language.
Avoid reactive terminations in anger—document and plan to reduce litigation risk.
Stay Ahead with Compliance Calendars
Create a shared calendar that prompts:
- WSIB and payroll remittance dates.
– - Annual ESA and OHSA policy reviews.
– - Privacy and cybersecurity tabletop exercises (at least yearly).
– - Option-plan “evergreen” top-ups and board-approval cycles.
Operationalising compliance means founders can focus on product, not fire drills.
How AMAR-VR LAW Can Support
Employment law should accelerate growth, not stall it. Our firm helps Ontario start-ups:
- Draft ESA-proof employment contracts—probation, IP assignment, and termination language built in.
– - Design option plans that balance retention, tax efficiency, and future‐round expectations.
– - Audit contractor classifications to avoid CRA and ESA surprises.
– - Create lean policy suites—violence & harassment, AODA, privacy—tailored to remote or hybrid teams.
– - Guide terminations—risk assessment, severance calculations, and release documentation—so founders can pivot without courtroom detours.
We deliver practical, stage-appropriate advice that scales with your headcount and ambitions.
Conclusion
Hiring employees turns your idea into an enterprise—but it also transforms your legal footprint. By mastering ESA basics, locking down IP in written contracts, registering payroll and WSIB accounts, and maintaining lean but compliant workplace policies, Ontario start-ups can recruit talent confidently and avoid compliance landmines.
Contact us today for a consultation if you’re gearing up to hire—or want to sanity-check the templates you pulled off the internet. We’ll help you build a people stack that powers growth while keeping legal risk firmly in check.
Frequently Asked Questions (FAQs)
- Why is it critical for Ontario startups to understand employment law when hiring their first employees?
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Employment law sets mandatory minimum standards for wages, hours, leave entitlements, termination rights, and workplace safety. Missteps at the hiring stage can expose startups to regulatory audits, fines, personal director liability, and wrongful-dismissal litigation that can quickly consume limited capital and distract from growth.
– - What makes written employment contracts essential for early hires?
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Well-drafted, ESA-compliant contracts clarify duties, limit severance exposure, secure intellectual property ownership, and establish enforceable probationary and termination terms. Without them, founders face heightened liability for wrongful dismissal, common-law notice obligations, and potential IP ownership disputes down the line.
– - How do founders avoid misclassifying workers as contractors instead of employees?
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Worker classification turns on factors like control, integration, financial risk, and provision of tools. Startups that set schedules, provide equipment, and rely on individuals to represent the brand often create employment relationships, regardless of labels. Misclassification triggers retroactive tax, payroll, and benefit liabilities.
– - What core registrations and filings are required once a startup hires employees?
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Startups must register for CRA payroll accounts, remit source deductions monthly, register for Employer Health Tax and WSIB (especially after 2024 coverage expansions), and maintain mandatory ESA, OHSA, AODA, and workplace violence policies. Directors can face personal liability for remittance failures.
– - How can AMAR-VR LAW assist startups in building compliant employment practices?
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AMAR-VR LAW prepares ESA-compliant contracts, tailors IP assignment and confidentiality agreements, designs stock option plans aligned with tax and regulatory standards, audits contractor classifications, drafts lean policy suites for evolving teams, and supports founders through terminations and workforce pivots—all while minimizing litigation risk and preserving startup runway.
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