Employment contracts form the foundation of every workplace relationship, yet many Ontario employers continue using outdated templates that expose them to unnecessary legal risk. With evolving case law and legislative changes, contracts drafted even a few years ago may contain clauses that courts have since invalidated.
Here are five critical clauses every employer should review this year.
1. Termination Provisions
This clause deserves top priority. Ontario courts have struck down countless termination provisions for failing to meet Employment Standards Act (ESA) minimums or for using ambiguous language. A termination clause must clearly address all forms of termination, with cause, without cause, and resignation, while explicitly preserving ESA entitlements.
If your termination clause references “just cause” without clarifying that employees still receive ESA minimums even when terminated for cause, courts may void the entire provision. The consequence? Your employee becomes entitled to common law reasonable notice, which typically far exceeds statutory requirements.
2. Probationary Period Language
Many employers assume probationary periods allow termination without notice or liability. This assumption is wrong. Under the ESA, employees with three or more months of service are entitled to statutory notice regardless of probationary status.
Your contract should specify that probationary employees receive ESA minimums upon termination. Without this language, courts may interpret the probationary clause as attempting to contract out of the ESA, potentially invalidating your entire termination provision.
3. Restrictive Covenants
Non-competition and non-solicitation clauses face heavy judicial scrutiny in Ontario. Courts presume these restrictions are unenforceable unless the employer proves they’re reasonable in scope, geography, and duration.
Review your restrictive covenants for overly broad language. A non-competition clause covering “all of Ontario” for “two years” will likely fail. Consider whether non-solicitation provisions adequately protect legitimate business interests without unreasonably limiting the departing employee’s ability to earn a livelihood.
4. Entire Agreement Clauses
An “entire agreement” clause states that the written contract represents the complete agreement between parties, superseding prior negotiations or promises. This clause protects employers from claims that verbal assurances made during recruitment form part of the employment agreement.
Ensure your entire agreement clause is prominently placed and clearly worded. However, remember that such clauses cannot override statutory minimums or allow misrepresentation during hiring.
5. Compensation and Bonus Provisions
Disputes over bonus entitlements upon termination generate significant litigation. If your contract includes discretionary bonuses, specify whether employees terminated without cause remain eligible for prorated bonuses. Courts have awarded substantial damages where employers denied bonuses to terminated employees without clear contractual language supporting that decision.
Review whether your bonus language truly preserves employer discretion or creates an implied entitlement that survives termination.
Taking Action
Contract review shouldn’t wait until a dispute arises. Proactive employers schedule regular legal audits to ensure their employment agreements reflect current law and adequately protect business interests.
Consider having a qualified Employment Law Firm review your template contracts, particularly if they haven’t been updated in the past two to three years. The cost of professional review pales compared to the expense of defending a wrongful dismissal claim where your termination clause fails judicial scrutiny.
Strong employment contracts don’t just protect against litigation, they establish clear expectations that benefit both employer and employee throughout the working relationship.
