An employment contract can affect an employee’s rights from the beginning of a job through the end of the employment relationship. While many employees focus on salary and job title when reviewing an offer, an employment agreement can contain provisions dealing with termination, benefits, vacation, bonuses, confidentiality, restrictive covenants and other important terms.
Employees in Ontario are protected by minimum standards under the Employment Standards Act, 2000 (ESA), but those minimum standards are not necessarily the full extent of an employee’s rights. An employment contract, the common law and other legislation can also affect the employment relationship.
Understanding the terms of an employment contract before signing can help an employee identify provisions that may deserve closer attention.
What Is an Employment Contract
An employment contract is an agreement that establishes the terms of an employment relationship between an employer and an employee.
The agreement may be a formal document signed by both parties, but employment terms can also arise from other documents, policies, communications and agreements depending on the circumstances.
An employment contract can address matters such as:
Job title and duties
Salary or hourly wages
Bonuses and commissions
Vacation
Benefits
Working hours
Probationary periods
Termination
Confidentiality
Intellectual property
Restrictive covenants
Dispute resolution
Employees should read the entire agreement rather than focusing only on the compensation section.
Why Should You Review an Employment Contract Before Signing
An employment contract can contain terms that have significant consequences later.
For example, an employee may accept a job based primarily on salary without considering how the contract addresses termination. A termination clause could affect what the employee receives if the employer later ends the employment relationship.
Other provisions may restrict how an employee can use confidential information, interact with customers or compete with a former employer.
Reviewing the contract before signing gives an employee an opportunity to understand the agreement while there is still an opportunity to ask questions or seek legal advice.
Salary and Compensation
The compensation section should clearly identify the employee’s base salary or hourly rate and any other forms of compensation.
Depending on the position, an employee may receive additional compensation through:
Annual bonuses
Performance bonuses
Sales commissions
Equity or stock options
Profit-sharing
Signing bonuses
Other incentive compensation
Employees should determine whether additional compensation is guaranteed, discretionary or dependent on specific conditions.
Bonus and commission provisions can become particularly important if employment ends. The contract may contain rules concerning whether an employee must remain employed on a particular date to receive a bonus or how commissions are calculated and paid.
Job Duties and Responsibilities
An employment agreement may describe the employee’s position and responsibilities.
Employees should consider whether the duties described in the contract accurately reflect the position they are accepting. They should also look for provisions that give the employer flexibility to change duties, responsibilities, reporting relationships or other aspects of the position.
The wording can be particularly important where a significant change is later proposed.
An employee who is asked to accept a substantial change to their role or working conditions should consider the circumstances carefully before resigning or agreeing to new terms.
Hours of Work
An employment contract may identify expected working hours, schedules or requirements relating to overtime and additional work.
Ontario’s ESA establishes minimum standards concerning hours of work, eating periods and overtime for employees covered by those provisions. Some employees and occupations are subject to exemptions or special rules.
An employee should therefore consider both the contract and the applicable employment standards when reviewing working-hour provisions.
Vacation and Time Off
Employment contracts often include provisions concerning vacation entitlement and other forms of time off.
Ontario’s ESA establishes minimum vacation time and vacation pay requirements for employees covered by the legislation. An employment contract can provide greater benefits than the statutory minimum.
Employees should understand whether the vacation provision in their contract represents the minimum required by law or provides an additional benefit.
Other forms of leave may also be addressed by legislation or workplace policies, including various job-protected leaves under Ontario’s employment standards legislation.
Employee Benefits
Benefits can represent a significant part of an employee’s overall compensation.
An employment contract or accompanying benefits documentation may address:
Health insurance
Dental coverage
Vision coverage
Life insurance
Disability benefits
Retirement or pension plans
Other employer-sponsored benefits
Employees should determine when coverage begins, what the plan covers and whether eligibility depends on particular conditions.
It can also be useful to understand what happens to benefits if employment ends, particularly where benefits represent a substantial portion of the employee’s overall compensation.
Probationary Periods
Employment contracts sometimes contain provisions describing a probationary or introductory period.
Employees should not automatically assume that being described as “probationary” means the employer can terminate them without complying with all applicable legal requirements.
Ontario’s ESA contains specific rules concerning eligibility for termination notice or termination pay, including a general three-month threshold, along with exemptions. Contractual and common-law rights can also be relevant. (ontario.ca)
The exact wording of a probationary clause should therefore be reviewed in the context of the entire employment agreement.
Termination Clauses
The termination provision is one of the most important parts of an employment contract.
A termination clause may attempt to establish what an employee will receive when the employer ends the employment relationship. Some clauses refer specifically to the minimum requirements under the ESA, while others attempt to limit an employee’s entitlement more broadly.
The enforceability of a termination clause can depend on its precise wording and the circumstances in which it was agreed to.
Employees should not assume that a clause is enforceable simply because it appears in a signed contract. Similarly, an employee should not assume that every termination clause is invalid because it limits potential compensation.
If a termination clause is unclear or potentially significant, obtaining legal advice before signing the agreement can help an employee understand its potential effect.
Common Law Reasonable Notice
Employment contracts can also affect whether an employee may have a right to common-law reasonable notice if their employment is terminated.
Where an enforceable contractual termination provision does not determine the employee’s entitlement, common-law reasonable notice may become relevant.
The appropriate notice period is not determined by a simple formula. Courts can consider factors such as the employee’s age, length of service, position, compensation and the availability of comparable employment.
This is one reason why the termination section deserves careful attention when reviewing an employment contract.
Confidentiality Clauses
Many employment contracts contain confidentiality or non-disclosure provisions.
These provisions can restrict employees from disclosing confidential business information, customer information, trade secrets and other proprietary information.
Employees should understand what the agreement considers confidential and whether confidentiality obligations continue after employment ends.
A confidentiality clause does not necessarily prevent an employee from using general knowledge, skills or experience gained during their career. The specific wording and circumstances matter.
Non-Solicitation Clauses
A non-solicitation clause may restrict an employee from actively pursuing certain customers, clients, vendors, business partners or other employees after leaving an employer.
These provisions can vary considerably in scope and duration.
Ontario’s ESA does not prohibit non-solicitation agreements in the same way it prohibits non-compete agreements. However, questions about whether a particular non-solicitation provision is enforceable can involve common-law principles and the specific wording of the agreement. (ontario.ca)
Employees whose contracts contain restrictive covenants should understand exactly what activities are restricted before signing.
Non-Compete Agreements in Ontario
Ontario’s ESA generally prohibits employers from entering into employment contracts or other agreements containing non-compete agreements with employees. The prohibition took effect on October 25, 2021.
A non-compete agreement is broadly defined as an agreement that prohibits an employee from engaging in competing business, work, occupation, profession, project or other activity after the employment relationship ends. (ontario.ca)
There are exceptions under the ESA, including certain circumstances involving the sale of a business and agreements involving executives. Non-compete agreements entered into before October 25, 2021 are also treated differently under the ESA. (ontario.ca)
A clause labelled “non-compete” may also actually contain different restrictions, such as non-solicitation or confidentiality provisions. The substance of the restriction matters.
Intellectual Property Clauses
Some employment contracts address intellectual property created during employment.
These provisions can deal with ownership of inventions, software, designs, written materials, processes, business concepts and other work product.
Employees working in technology, research, design, creative industries or other fields where intellectual property is important should pay particular attention to these provisions.
The scope of an intellectual property clause can matter, particularly where an employee works on personal projects outside working hours.
Ownership of Work Product
An employment contract may specify who owns materials created during the employment relationship.
Employees should understand how the agreement defines work created “in the course of employment” and whether the clause extends beyond work performed for the employer.
If an employee has existing intellectual property, inventions, software, creative work or other materials that they want to retain ownership of, they may wish to identify those items before entering into the employment relationship.
Policies and Employee Handbooks
An employment relationship can be governed by more than the main employment contract.
Employers may also provide workplace policies, benefit documents, codes of conduct and other materials that establish expectations or rules.
Employees should understand which documents form part of the employment agreement and whether the contract allows the employer to change policies unilaterally.
An employee should also be cautious about assuming that a workplace policy has the same legal status as a contractual term. The distinction can depend on the wording and circumstances.
Can an Employer Change Your Employment Contract
Changes to employment terms can raise legal questions.
An employer may propose changes to salary, duties, working location, hours or other important conditions of employment. Whether an employer can make a particular change without the employee’s agreement can depend on the contract and the circumstances.
A significant unilateral change may potentially raise issues involving constructive dismissal, although not every workplace change will have that effect.
Employees who are presented with a substantially revised employment agreement should consider obtaining legal advice before signing or rejecting it.
What Should You Look for Before Signing an Employment Contract
Before signing an employment agreement, employees should consider reviewing:
Salary and other compensation
Bonus and commission provisions
Job duties
Hours and scheduling
Vacation entitlement
Benefits
Probationary provisions
Termination clauses
Confidentiality obligations
Non-solicitation provisions
Non-compete provisions
Intellectual property provisions
Dispute resolution provisions
Any documents incorporated into the agreement
An employee should also check whether the contract accurately reflects the terms that were discussed during the hiring process.
What If You Already Signed the Contract
Signing an employment contract does not necessarily mean that every provision will automatically be enforceable.
The legal effect of a particular provision can depend on the wording of the agreement, applicable legislation and common-law principles.
If an employee has already signed a contract and later discovers a provision they are concerned about, they should not assume that there is nothing they can do. A lawyer can review the agreement and explain the potential implications.
Should You Have an Employment Contract Reviewed by a Lawyer
Employees are not necessarily required to have every employment contract reviewed by a lawyer.
However, legal review can be particularly valuable when an agreement contains complicated termination provisions, restrictive covenants, substantial variable compensation, intellectual property provisions or other terms that could have significant consequences.
Legal advice can also be useful when an employee is being asked to sign a new agreement as a condition of continuing employment.
The cost and complexity of obtaining advice can vary depending on the length and complexity of the agreement.
Frequently Asked Questions About Ontario Employment Contracts
Is an employment contract required in Ontario?
Not every employment relationship requires a formal written contract. Employment terms can arise from the agreement between the parties and other circumstances.
However, having important employment terms in writing can make the rights and obligations of both parties clearer.
Can an employer change my employment contract?
An employer cannot necessarily make every change to an employee’s contractual terms unilaterally. The answer can depend on the existing agreement and the nature and significance of the proposed change.
A substantial unilateral change may raise legal issues, including potential constructive dismissal.
Is a non-compete clause legal in Ontario?
Ontario’s ESA generally prohibits employers from entering into employment contracts containing non-compete agreements, subject to specific exceptions. The prohibition generally applies to agreements entered into on or after October 25, 2021. (ontario.ca)
Non-solicitation and confidentiality clauses are different types of restrictions and are not prohibited by the ESA in the same way.
Can an employment contract limit severance?
An employment contract may contain a termination provision that attempts to limit an employee’s entitlement when employment ends. Whether that provision is enforceable depends on its wording and the applicable law.
Employees should not assume that the amount stated in a contract is automatically the amount they will receive after termination.
Can I negotiate an employment contract?
Employment contracts can sometimes be negotiated before they are signed.
Employees may negotiate matters such as salary, vacation, bonus structures, benefits, job duties, termination provisions and other terms depending on the circumstances.
The employer does not necessarily have to agree to proposed changes, but asking questions before signing can help clarify the agreement.
Should I sign an employment contract without reading it?
Employees should carefully review an employment agreement before signing it.
Important provisions concerning termination, compensation, restrictive covenants, confidentiality and intellectual property can have consequences that may not be obvious from the job offer or salary discussion.
What happens if I refuse to sign an employment contract?
The consequences of refusing to sign a proposed employment agreement depend on the circumstances, including whether the agreement is being presented before employment begins or during an existing employment relationship.
An employee who is asked to sign a new contract as a condition of keeping an existing job may wish to obtain legal advice before agreeing or refusing.
Can a lawyer review my employment contract?
Yes. An employment lawyer can review an employment agreement and identify provisions that may deserve additional attention.
A lawyer can also explain how particular clauses may affect an employee’s rights and help an employee understand what they are agreeing to before signing.
Get Advice About an Ontario Employment Contract
An employment contract can affect an employee’s compensation, workplace obligations and rights when employment ends. Taking the time to understand the agreement before signing can help avoid surprises later.
EmploymentLawyerToronto.ca provides employment law information and legal services for employees dealing with workplace issues in Ontario. If you have questions about an employment contract or are being asked to sign a new agreement, consider speaking with an employment lawyer about your circumstances.
This page provides general information about Ontario employment law and is not legal advice. Employment law can depend on the specific facts of each situation.