An employment contract is one of the most important documents in any business relationship — and one of the most frequently misunderstood. In Ontario, the law sets a floor for employment standards, but everything above that floor is shaped by what the contract says. Get it right, and you have clarity and protection. Get it wrong, and a single missing clause can cost tens of thousands of dollars.
Whether you are an employer hiring your first employee, or an employee reviewing an offer, here is what the contract needs to address — and why each element matters.
1. Compensation and Pay Structure
This seems obvious, but the details are what matter. The contract should clearly state the base salary or hourly wage, the pay cycle (bi-weekly, semi-monthly), and whether the employee is eligible for bonuses, commissions, or profit-sharing. If there is a variable compensation component, the contract needs to define how it is calculated, when it is paid, and — critically — what happens to it when employment ends.
Vague bonus language is a source of ongoing litigation. Courts have consistently held that discretionary bonuses can become implied contractual entitlements when they are paid regularly. If a bonus is genuinely at the employer's discretion, the contract must say so clearly.
What to include: Base compensation, pay frequency, overtime treatment, bonus eligibility and calculation method, and the conditions under which variable compensation is earned and forfeited.
2. Job Title, Duties, and Reporting Structure
The contract should describe the role with enough specificity to establish what the employee was hired to do — without being so rigid that ordinary business changes constitute a breach. Courts in Ontario have found that significant, unilateral changes to an employee's role, responsibilities, or reporting structure can amount to constructive dismissal, even if the pay remains the same.
A well-drafted clause defines the position, establishes the reporting relationship, and reserves the employer's right to reasonably modify duties as business needs evolve — which is legitimate and enforceable when drafted properly.
3. Termination Provisions — The Most Important Clause
This is where most employment contracts fail, and where the stakes are highest. Ontario's Employment Standards Act, 2000 (ESA) sets minimum notice and severance entitlements. But at common law, employees are entitled to much more — often significantly more, depending on their age, length of service, seniority, and the availability of comparable employment.
"A poorly drafted termination clause can expose an employer to common law reasonable notice — which can reach 12 to 24 months' pay for a long-service employee."
To limit termination liability to ESA minimums, the contract must have a clearly written termination clause that expressly displaces common law entitlements. Ontario courts apply strict scrutiny to these clauses. A clause that fails to reference all components of compensation — including benefits continuation — may be struck down entirely, leaving the employer exposed to full common law notice.
This is not a drafting exercise where generic language is good enough. Termination clauses that have been copied from the internet or lightly adapted from another contract are regularly found unenforceable by Ontario courts.
What to include: Separate provisions for termination with cause and without cause, express reference to ESA minimums (or a formula that always meets them), and clear language displacing common law entitlements.
4. Confidentiality and Intellectual Property
Any employee who works with sensitive business information, customer data, trade secrets, or proprietary processes should be bound by a confidentiality obligation. This should cover information accessed during employment and extend for a reasonable period after the employment ends.
Equally important is the intellectual property assignment clause. Without it, there is a real question about who owns work product created by an employee — particularly for employees who develop software, creative content, or business processes. The contract should make clear that work created in the course of employment belongs to the employer.
5. Non-Solicitation Provisions
Non-solicitation clauses — which restrict a departing employee from soliciting the employer's clients or employees — are generally enforceable in Ontario if they are reasonable in scope and duration. Non-compete clauses, by contrast, are treated much more skeptically and are frequently struck down entirely.
As of October 2021, the ESA expressly prohibits non-compete agreements for most employees in Ontario (with a narrow exception for senior executives and certain business sales). Employers who include broad non-compete provisions in standard employment contracts risk having those provisions — and potentially the broader agreement — found unenforceable.
What to include: Time-limited, geographically specific non-solicitation of clients and employees. Avoid broad non-compete language for most roles.
6. Probationary Period
Ontario's ESA permits employers to terminate an employee during the first three months of employment without providing notice or severance, provided the purpose is genuine assessment and not avoidance of statutory obligations. The contract should clearly define the probationary period, what assessment criteria apply, and what happens at the end of the period.
Probationary periods longer than three months do not extend ESA-free termination rights — that window is fixed by the ESA regardless of what the contract says.
7. Entire Agreement and Acknowledgment of Review
The contract should include an entire agreement clause confirming that it supersedes any prior representations, offers, or discussions. It should also include an acknowledgment that the employee was given time to review the agreement and, ideally, that they were advised to seek independent legal advice before signing.
This matters because Ontario courts consider whether employees had an opportunity to understand what they were signing. Contracts signed on the first day of work, under pressure, or without adequate review time are more vulnerable to challenge.
Before You Sign — Or Before You Send
Employment contracts govern one of the most important relationships in any organization. A well-drafted agreement protects both parties by establishing clear expectations and limiting the uncertainty that leads to disputes. A poorly drafted one creates exactly that uncertainty — and courts will resolve it against the party who drafted the contract.
Solvine Law drafts and reviews employment contracts for Ontario businesses and employees. If you are putting an employment relationship in writing — or reviewing an offer before you sign — book a free consultation call first.