In Ontario, an employment contract does not need to be in writing to be legally binding. A verbal or implied agreement can still create enforceable rights and obligations between an employee and an employer. However, written contracts provide clarity and certainty—and can significantly impact an employee’s rights, especially at the time of termination.
Whether a contract is verbal or written, certain provisions can substantially affect an employee’s entitlements and post-employment obligations. Below, we outline some of the most common clauses employees should be aware of, and why it’s important to seek legal advice before signing.
1. Termination Provisions
Termination clauses attempt to limit the amount of notice or severance an employee will receive upon dismissal. Under Ontario’s Employment Standards Act, 2000 (ESA), employees are entitled to minimum notice or pay in lieu. However, if a termination clause provides less than these minimums, it will be considered unenforceable—and the employee may instead be entitled to common law notice, which can be significantly more generous.
Recent Ontario case law, including the Court of Appeal decision in Waksdale v. Swegon North America Inc., has made it clear that courts will closely scrutinize these clauses. Employees should never assume that a termination clause is valid without legal review. Based on the case law, termination clauses are often invalid and unenforceable.
2. Non-Competition Clauses
A non-competition clause attempts to restrict an employee from working in the same industry or geographic area for a period of time after leaving their job. These clauses are considered a restraint of trade and are generally presumed unenforceable unless the employer can demonstrate that the restriction is necessary to protect legitimate business interests—and that it is reasonable in scope, duration, and geography.
Most non-compete clauses entered after October 2021 are prohibited in Ontario under the ESA, except for certain senior executives. Even where technically permitted, courts often strike them down for being overly broad or unnecessary to protect the employer’s legitimate business interests.
3. Non-Solicitation Clauses
Non-solicitation provisions prevent an employee from contacting or doing business with the employer’s clients, customers, or employees after leaving the company. Unlike non-compete clauses, these are more likely to be upheld—if they are reasonable in scope.
That said, enforceability is still not guaranteed. A poorly drafted non-solicitation clause may be struck down for being overly vague or expansive. Employees should have these clauses reviewed carefully to understand their true reach.
4. Compensation and Bonus Entitlements
An employment contract should clearly set out the employee’s compensation structure—including salary, bonuses, commissions, benefits, and other entitlements. Special attention should be paid to:
- When and how bonuses or commissions are earned and paid
- Whether bonuses are “discretionary” or “guaranteed”
- Whether any compensation is forfeited upon termination or resignation
Ontario courts have frequently found that unclear bonus clauses may still entitle an employee to a pro-rated or full bonus on termination, especially if the bonus was a significant part of their overall compensation.
Final Thoughts
Employment contracts are legal documents that can significantly impact your rights during and after your employment. Employees should never feel pressured to sign without reviewing the terms—particularly when it comes to termination clauses and restrictive covenants.
The employment lawyers at Singh Lamarche LLP have extensive experience reviewing, drafting, and negotiating employment contracts for employees across Ontario. We’ll ensure that your contract protects your rights and sets you up for success. Contact us today for a consultation.
