What Must Be in an Employment Contract in Ontario?
A verbal job offer creates a contract. But without a written agreement with a valid termination clause, employers face enormous and often avoidable liability under Ontario employment law. Here is what every employment contract needs.
Why Written Employment Contracts Matter
In Ontario, employment relationships are governed by three layers: the Employment Standards Act, 2000 (ESA) establishes mandatory minimum protections; common law fills in any gaps where no contract term applies; and the written contract defines whatever is permissible above those floors. Without a written contract or with a poorly drafted one courts will imply common law terms, which are far more generous to employees than most employers realize.
The most significant risk: without an enforceable termination clause, an employer may owe reasonable notice at common law on dismissal without cause. For a long-service employee, this can be a year or more of pay. A valid written termination clause can limit this obligation to the ESA minimums.
The ESA Floor What You Cannot Contract Below
| ESA Entitlement | Minimum Standard |
|---|---|
| Termination notice / pay in lieu | 1 week per year of service, up to 8 weeks |
| Severance pay (if applicable) | 1 week per year of service for employees with 5+ years at employers with $2.5M+ annual payroll |
| Vacation | 2 weeks after year 1; 3 weeks after 5 years; 4% / 6% vacation pay |
| Overtime | 1.5x regular rate after 44 hours per week |
| Public holidays | 9 public holidays with public holiday pay |
No term of an employment contract can provide less than these ESA minimums. Any term that purports to do so even indirectly, even in an unlikely scenario is void and may take the entire termination clause down with it.
Essential Clauses in Every Ontario Employment Contract
1. Position and Duties
Describe the role, reporting relationship, and primary duties. Include language allowing the employer to reasonably modify duties from time to time this provides operational flexibility without constituting constructive dismissal.
2. Compensation and Benefits
Specify the base salary or hourly wage, payment frequency, and any bonus arrangements. Distinguish clearly between discretionary bonuses (no entitlement) and formula-based bonuses (creates a contractual right). The distinction between discretionary and formulaic bonuses is frequently litigated in Ontario.
3. Termination Clause The Most Critical Provision
Limits the employee's entitlement on dismissal without cause to a specified amount which must, at minimum, equal the ESA entitlements in all circumstances. Without a valid termination clause, common law reasonable notice applies.
4. Confidentiality
An obligation to keep the employer's confidential information and trade secrets confidential, during and after employment. This should specify what constitutes confidential information and the obligations upon departure.
5. Intellectual Property Assignment
All work product, inventions, and IP created in the course of employment belongs to the employer. This should be explicit particularly for technology, creative, and professional roles where valuable IP may be created during the employment relationship.
6. Non-Solicitation
Post-employment restriction on soliciting the employer's clients or employees. Note: under Ontario's Working for Workers Act, 2021, post-employment non-competition clauses are effectively banned in employment agreements entered into after October 25, 2021 (with limited exceptions). Non-solicitation clauses remain available and are more likely to be enforced.
7. Entire Agreement
Specifies that the written contract is the entire agreement no verbal side deals, representations, or prior promises are binding beyond what is written. Protects both parties from "he said, she said" disputes about what was promised at the hiring stage.
Timing and Consideration
An employment contract must be presented and signed before the employee starts work. A contract presented after employment has already begun may be unenforceable for lack of consideration unless the employer provides fresh consideration a signing bonus, a pay raise, or additional benefits in exchange for the employee's agreement to the new terms.
This is a common and costly mistake: handing an employee a contract on their first day of work, after a verbal offer has already been accepted, may not create a binding contract.