Why Your Employment Contract Matters
When you start a new job in Ontario, your employer will likely ask you to sign an employment contract. This contract sets out the terms and conditions of your employment, and it is a legally binding document. Once you sign it, you are generally bound by its terms -- and so is your employer.
For newcomers to Canada, employment contracts can be particularly confusing. The legal language may be unfamiliar, and the pressure to accept a job offer quickly can make it tempting to sign without reading the fine print. But the clauses in your contract can significantly affect your rights, especially if you are later terminated. Taking the time to understand your contract is one of the best things you can do to protect yourself.
Key Clauses to Watch For
1. Termination Clause
This is arguably the most important clause in any employment contract. A termination clause defines what you will receive if your employer terminates your employment without cause. Without a valid termination clause, you would be entitled to common law reasonable notice, which can be up to 24 months of compensation.
Many termination clauses attempt to limit your entitlements to the minimum standards under the Employment Standards Act, 2000 (ESA). For example, a clause might say: "Upon termination without cause, the employee will receive the minimum notice and severance pay required by the ESA."
However, many termination clauses in Ontario are unenforceable. Following the landmark decision in Waksdale v. Swegon North America Inc. (2020), Ontario courts will void an entire termination provision if any part of it could, even theoretically, result in an employee receiving less than the ESA minimum. This means that poorly drafted termination clauses -- which are surprisingly common -- may not hold up in court.
What to look for: Does the clause clearly provide at least the ESA minimums for both termination pay and severance pay? Does it address benefits continuation? Is the language clear and unambiguous? If in doubt, have a lawyer review it before you sign.
2. Probationary Period
Many contracts include a probationary period, typically 3 to 6 months, during which the employer can terminate your employment with less notice. Under the ESA, if you are terminated during a probationary period of 3 months or less, you are not entitled to notice of termination.
What to look for: How long is the probationary period? What happens at the end of it? Make sure the probationary period does not exceed 3 months if the contract is trying to limit your ESA notice entitlements during that time.
3. Non-Competition Clauses
A non-competition clause restricts your ability to work for a competitor or start a competing business after your employment ends. In October 2021, Ontario introduced a ban on non-competition agreements for most employees under the Working for Workers Act, 2021. This means that non-compete clauses signed after October 25, 2021 are generally unenforceable, with a narrow exception for C-suite executives (such as CEOs and CFOs).
If your contract contains a non-compete clause and you are not a C-suite executive, that clause is likely void.
What to look for: Does your contract contain a non-compete? If so, when was it signed? If it was signed after October 25, 2021, and you are not a C-suite executive, you can likely disregard it.
4. Non-Solicitation Clauses
Unlike non-compete clauses, non-solicitation clauses are still generally enforceable in Ontario. These clauses prevent you from soliciting your former employer's clients or employees after you leave. However, they must be reasonable in scope, duration, and geographic area to be enforceable.
What to look for: How long does the non-solicitation period last? Is it limited to specific clients or employees you actually worked with? Is it geographically reasonable? Courts will not enforce overly broad non-solicitation clauses.
5. Intellectual Property and Confidentiality
Intellectual property (IP) clauses typically state that anything you create during your employment belongs to the employer. This is generally standard and expected. However, some clauses are drafted very broadly and could claim ownership over work you do on your own time with your own resources.
Confidentiality clauses prevent you from sharing your employer's proprietary information. These are standard and generally enforceable, but make sure the definition of "confidential information" is reasonable.
What to look for: Does the IP clause apply only to work done during your employment and using company resources? Is the definition of confidential information clear and reasonable?
6. Compensation and Benefits
Your contract should clearly state your compensation, including:
- Base salary or hourly rate
- Bonus structure (is the bonus discretionary or guaranteed?)
- Benefits (health, dental, vision, life insurance)
- Vacation entitlement (is it the ESA minimum or more?)
- Any other perquisites (car allowance, phone, stock options, etc.)
What to look for: Make sure all promises made during the hiring process are reflected in the written contract. Verbal promises are difficult to enforce if they are not in writing. Pay special attention to bonus language -- if it says "discretionary," the employer may have significant leeway to reduce or eliminate your bonus.
7. Entire Agreement Clause
An entire agreement clause states that the written contract represents the complete agreement between you and your employer, and that any prior verbal or written discussions are superseded. This means that if your employer promised you something during the interview that is not in the written contract, you may not be able to enforce that promise.
What to look for: If the contract contains an entire agreement clause, make sure everything you were promised is included in the written document.
Can You Negotiate Your Employment Contract?
Yes, absolutely. Many employees, especially newcomers, feel they cannot negotiate and must accept whatever is offered. This is not true. You have the right to negotiate terms, and many employers expect some negotiation. Key areas you can negotiate include:
- Salary and bonus structure
- Vacation time beyond the ESA minimums
- Benefits
- The termination clause (for example, negotiating for a specific number of months of notice rather than ESA minimums)
- Start date
- Remote work arrangements
If an employer is unwilling to negotiate on important terms, consider whether this is the right employer for you.
What If You Already Signed a Contract?
If you have already signed an employment contract with problematic clauses, all is not lost. As discussed above, many termination clauses and non-compete clauses in Ontario are unenforceable. If you are facing termination or have been terminated, consult an employment lawyer to determine whether the clauses in your contract are actually valid.
Additionally, if your employer significantly changes the terms of your employment after you have been hired -- such as reducing your pay, changing your job duties, or demoting you -- this could constitute constructive dismissal, which is treated the same as being terminated without cause. In such cases, the original contract terms may be relevant to determining your entitlements.
Special Considerations for Newcomers
If you are new to Canada, here are some additional tips:
- Do not let language barriers prevent you from understanding your contract. If the contract is in English and English is not your first language, ask for time to have it reviewed by someone you trust, or consult a lawyer who speaks your language.
- Be wary of employers who pressure you to sign immediately. A reputable employer will give you reasonable time to review the contract.
- Know that your immigration status does not reduce your contract rights. Whether you are a permanent resident, work permit holder, or have any other status, the contract law principles are the same.
- Keep a copy of your signed contract. Always request and retain a copy of the fully executed contract for your records.
When to Consult a Lawyer
Consider consulting an employment lawyer before signing your contract if:
- The contract contains a termination clause that limits your entitlements
- You are being asked to sign a non-compete or restrictive covenant
- The compensation does not match what was discussed during the hiring process
- The contract terms seem unusual or overly restrictive
- You are unsure about any clause in the contract
The cost of having a lawyer review your contract before you sign is modest compared to the potential financial impact of an unfavorable termination clause. At Imigrando, we are here to help you understand your employment contracts and protect your rights in the workplace.