Most employees sign their employment contract in the excitement of a new job offer, often without reading it carefully, and rarely with legal advice. That is understandable, but it is also a missed opportunity, because the terms of that contract, particularly the termination clause, can determine what you are legally entitled to if the job ever ends, for better or worse. For employers, a poorly drafted contract can create liability that a well-drafted one would have avoided entirely.
Our guide on wrongful dismissal in Ontario explains what happens when a termination goes wrong. This guide looks at the contract itself: what makes an employment contract enforceable, what a termination clause actually needs to say to hold up, how probationary periods work, and what employers and employees both need to know about non-competition and non-solicitation clauses, which operate very differently in an employment relationship than they do in the sale of a business.
This guide explains how employment contracts work in Ontario, from both the employee and employer perspective, and how to find an employment lawyer in the GTA who speaks your language. This guide is a companion to our guides on wrongful dismissal in Ontario and workplace discrimination and human rights in Ontario, which cover what happens when the employment relationship ends or goes wrong.
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What Makes an Employment Contract Enforceable
A valid employment contract in Ontario can be written, verbal, or a combination of both, though a written contract provides far more certainty for both parties. To be enforceable, a contract needs the basic elements of any contract: an offer, acceptance, and consideration (something of value exchanged, typically the job itself in exchange for the employee’s work). For an existing employee being asked to sign a new contract partway through employment, additional consideration, something beyond simply continuing the existing job, is generally required for the new terms to be enforceable, since continuing an existing job is not new consideration for a new contract.
Even a validly formed contract is not automatically enforceable in every respect. Ontario’s Employment Standards Act (ESA) sets minimum standards that cannot be contracted below. Any provision in an employment contract that attempts to provide less than the ESA minimum, whether for notice of termination, vacation pay, overtime, or other entitlements, is void and unenforceable, regardless of what the employee agreed to. This is one of the most important principles in Ontario employment law: an employee’s agreement to accept less than the statutory minimum does not make that agreement binding.
The Termination Clause: The Most Important Provision
As explained in detail in our guide on wrongful dismissal in Ontario, Ontario employees are generally entitled to reasonable notice of termination under the common law, which is often significantly more generous than the ESA minimums, unless a valid, enforceable contract limits that entitlement. This makes the termination clause the single most consequential provision in most employment contracts, and it is also one of the most frequently drafted incorrectly.
Why Termination Clauses Often Fail
Ontario courts have taken an increasingly strict approach to interpreting termination clauses, and a significant proportion of termination clauses in employment contracts, including many drafted by employers without proper legal advice, are found unenforceable when challenged. Common reasons a termination clause fails include attempting to contract below ESA minimums (even in a single respect, such as excluding benefits continuation during the statutory notice period), using ambiguous language that could be interpreted as providing less than the ESA minimum in some circumstances, and failing to account for entitlements the ESA guarantees, such as severance pay for eligible employees or benefits continuation.
A critical principle in Ontario law is that if any part of a termination clause is found to violate the ESA, in any circumstance, even one the employer did not intend to trigger, the entire clause is generally struck down, not just the offending portion. When a termination clause is found unenforceable, the employee’s entitlement reverts to the common law reasonable notice standard, which can be substantially higher than what the contract intended to provide, and higher than the ESA minimum the clause was trying to limit the employee to.
What a Well-Drafted Termination Clause Should Address
- Clear, unambiguous language about what the employee is entitled to on termination without cause.
- Confirmation that the employee will receive at least their full ESA entitlements, including notice or pay in lieu, severance pay (if eligible), and benefits continuation during the statutory notice period.
- Separate and distinct treatment of termination for cause, which has its own, higher legal standard, discussed below.
- A clear statement of what happens to bonus, commission, or other variable compensation on termination, since this is a frequent area of dispute if not addressed explicitly.
Termination for Cause
Employment contracts commonly include a for-cause termination provision allowing the employer to end the employment relationship without notice or severance if the employee engages in sufficiently serious misconduct. It is important to understand that the legal standard for just cause in Ontario is high; it generally requires misconduct that is incompatible with the fundamental terms of the employment relationship, not simply poor performance or a single policy violation. Employers who terminate for cause without meeting this high standard, or whose contract defines ’cause’ more broadly than the law actually allows in a way that attempts to reduce ESA entitlements, risk the same enforceability problems discussed above, and can face liability for wrongful dismissal even though they characterized the termination as being for cause.
Probationary Periods
Many Ontario employment contracts include a probationary period, typically ranging from three to six months, during which the employer can assess the employee’s suitability for the role. During a properly structured probationary period, an employer can terminate the employment relationship with less notice than would otherwise apply, generally limited to the ESA minimum notice requirement (which, for employees with less than three months of service, can be as little as none, since ESA notice obligations generally begin to accrue after three months of employment).
For a probationary period to limit an employer’s liability in this way, it generally must be clearly and properly set out in a written contract, using language that meets the same enforceability standards as any other termination provision. An employer cannot rely on an informal or undocumented understanding that a new employee is ‘on probation’ to reduce statutory or common law entitlements; without a properly drafted contractual probationary clause, ordinary termination principles and notice obligations apply from the first day of employment.
Non-Competition Clauses in Employment
A non-competition clause (or non-compete) in an employment contract attempts to restrict a departing employee from working for a competitor or starting a competing business for a defined period after their employment ends. This is an area where the law has changed significantly in recent years, and where the rules for employees are now meaningfully different from the rules for a business owner selling their business, discussed in our guide on buying or selling a business in Ontario.
Non-Competes Are Now Largely Prohibited for Employees
Since amendments to Ontario’s Employment Standards Act came into force, non-competition clauses in employment agreements are void and unenforceable against most employees in Ontario, with narrow exceptions. The primary exceptions are for executives (generally meaning individuals holding a chief executive-level title, such as CEO, president, or similar senior roles) and for non-competition provisions entered into in connection with the sale of a business, where the departing owner agrees not to compete with the business they sold, which is treated under the different framework discussed in our guide on buying or selling a business in Ontario.
This is a significant and relatively recent shift in Ontario law, and it means that most non-competition clauses that appear in ordinary employee contracts today, outside these narrow exceptions, are simply not enforceable, regardless of how they are worded. Employers who continue to include broad non-compete clauses in standard employee contracts, believing them to be enforceable, are often mistaken, and employees who are told they cannot work for a competitor because of a non-compete in their contract should have that provision reviewed by an employment lawyer, since it may well be void.
Non-Solicitation Clauses: Still Generally Enforceable
Unlike non-competition clauses, non-solicitation clauses remain generally enforceable in Ontario employment contracts, provided they are reasonable in scope. A non-solicitation clause restricts a departing employee from soliciting the former employer’s clients, customers, or other employees for a defined period, without prohibiting the former employee from working in the same industry or for a competitor altogether. Because a non-solicitation clause is a narrower restriction than a non-compete, courts are generally more willing to enforce it, provided the scope (the definition of who cannot be solicited), the duration, and the geographic area, where applicable, are reasonable and no broader than necessary to protect the employer’s legitimate business interests.
Confidentiality and Intellectual Property Provisions
Most employment contracts, particularly for roles involving access to sensitive business information, include confidentiality provisions protecting the employer’s trade secrets, client information, and other proprietary information, both during and after employment. These provisions are generally enforceable and are treated differently from non-competition clauses, since they do not restrict where a former employee can work, only what information they can use or disclose. Employment contracts, particularly in technology, creative, and research-driven roles, also commonly include intellectual property assignment clauses, confirming that work created by the employee within the scope of their employment belongs to the employer. These provisions are standard and generally enforceable, though the specific scope should be reviewed carefully, particularly by employees who may also engage in independent projects outside of work.
Fixed-Term Contracts
Some employment relationships are structured as fixed-term contracts, with a defined start and end date, rather than indefinite employment. Fixed-term contracts carry a significant and often underappreciated risk for employers: unless the contract includes a valid, enforceable early termination clause, ending a fixed-term contract early can obligate the employer to pay the employee for the entire remaining balance of the term, even if that amount far exceeds what would otherwise be considered reasonable notice for an indefinite employee. This makes careful drafting of fixed-term contracts, including a properly enforceable termination provision, particularly important from the employer’s perspective.
Reviewing a Contract Before You Sign
For employees, the best time to have an employment contract reviewed by a lawyer is before signing it, not after a dispute arises. A lawyer can identify whether the termination clause is likely enforceable, flag any non-competition provisions that may be void, and advise on whether specific terms, such as bonus eligibility, benefits, or restrictive covenants, are reasonable and consistent with your understanding of the offer. Reviewing a contract before signing is a relatively small investment compared to the value of understanding, in advance, exactly what you are agreeing to.
For employers, working with an employment lawyer to draft or update standard employment contract templates is one of the most cost-effective forms of legal risk management available. Given how often termination clauses are found unenforceable when challenged, a periodic legal review of standard contract templates, particularly after any relevant changes in the law, is a worthwhile investment that can prevent significantly larger liability down the road. See our guide on starting a business in Ontario for a broader discussion of the legal steps involved in hiring your first employees.
Why an Employment Lawyer Who Speaks Your Language Matters
Employment contracts are dense legal documents, and understanding exactly what you are agreeing to, or what you are asking an employee to agree to, requires precision. For employees whose first language is not English, reviewing a contract in a second language, often under time pressure to accept a job offer, makes it significantly harder to catch the details that matter most, such as an unenforceable termination clause or an unreasonable restrictive covenant.
An employment lawyer who speaks your language can walk through a contract clause by clause in the language you understand most precisely, whether you are reviewing an offer before signing or trying to understand your rights after a termination. Our Language Guides explain the legal landscape for specific communities across the GTA, including Mandarin, Cantonese, Hindi, Punjabi, Urdu, Tamil, Korean, Italian, Portuguese, Ukrainian, Russian, Hebrew, Farsi, Arabic, Spanish, and French. For a general guide on finding a multilingual lawyer, see our guide on how to find a multilingual lawyer in Toronto.
How to Find an Employment Lawyer in the GTA
To find a lawyer, visit the main lawyers directory, filter by Employment Law and your language, and narrow by location. For advice on choosing a lawyer, see our guide on questions to ask before hiring a lawyer, and for what to expect at your first meeting, see our guide on the first legal consultation. For an explanation of legal fees, see our guide on how much a lawyer costs in Ontario and our guide on retainer agreements in Canada. Always confirm the lawyer is currently licensed by checking our verification process or the Law Society of Ontario’s public register.
Frequently Asked Questions
Are non-competition clauses enforceable in employment contracts in Ontario?
In most cases, no. Since amendments to Ontario’s Employment Standards Act, non-competition clauses in employment agreements are void and unenforceable against most employees, with narrow exceptions for executives and for non-competition provisions entered into as part of the sale of a business. If your employment contract includes a non-compete and you are not in one of these exception categories, the clause is likely unenforceable, regardless of how it is worded. Non-solicitation clauses, which restrict soliciting clients or employees rather than prohibiting work in the industry entirely, remain generally enforceable if reasonable in scope.
Why do termination clauses in employment contracts often fail to hold up?
Ontario courts interpret termination clauses strictly, and a significant proportion are found unenforceable, often because they attempt, even in a single respect, to provide less than the minimum standards guaranteed by the Employment Standards Act, such as notice, severance pay, or benefits continuation. If any part of a termination clause violates the ESA in any circumstance, the entire clause is generally struck down, not just the offending part. When this happens, the employee’s entitlement reverts to the common law reasonable notice standard, which is often substantially more generous than what the clause intended to provide. See our guide on wrongful dismissal in Ontario for more on how notice entitlements are calculated.
Can my employer fire me during a probationary period without notice?
During a properly structured probationary period, an employer can terminate the employment relationship with reduced notice, generally limited to the applicable Employment Standards Act minimum, which for employees with less than three months of service can be very limited or none. However, for a probationary period to reduce entitlements this way, it must be clearly and properly set out in a written employment contract that meets the same enforceability standards as any other termination provision. Without this, ordinary notice principles apply from the first day of employment, regardless of any informal understanding that the employee was ‘on probation.’
Should I have a lawyer review my employment contract before signing it?
It is generally a worthwhile step, particularly for the termination clause and any restrictive covenants such as non-competition or non-solicitation provisions. A lawyer can identify whether the termination clause is likely enforceable, flag any non-competition provisions that may be void under current Ontario law, and confirm whether other terms, such as bonus eligibility or benefits, match your understanding of the offer. Reviewing a contract before signing is a relatively modest cost compared to the value of understanding exactly what you are agreeing to, particularly since these terms often only become significant much later, at the point of termination.
What is the difference between a non-competition clause and a non-solicitation clause in Ontario?
A non-competition clause attempts to prevent a former employee from working for a competitor or starting a competing business entirely, and this type of clause is now void and unenforceable against most Ontario employees under the Employment Standards Act, with narrow exceptions for executives and business sale transactions. A non-solicitation clause is narrower: it restricts a former employee from soliciting the employer’s clients, customers, or other employees, without preventing them from working in the same industry altogether. Non-solicitation clauses remain generally enforceable in Ontario, provided they are reasonable in scope, duration, and geographic area.
Find an Employment Lawyer in the GTA Who Speaks Your Language
Whether you are reviewing a job offer, drafting contracts for your employees, or trying to understand your rights after a termination, having an employment lawyer who can explain the details clearly in your first language protects your interests.
Lawyers Who Speak connects GTA residents and businesses with verified, Law Society of Ontario-licensed employment lawyers who speak their language. Search by language and practice area to find the right lawyer for your matter.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Employment law is fact-specific and changes periodically. Please consult a qualified employment lawyer licensed in Ontario for advice about your specific situation.