Why Written Employment Contracts Matter in Ontario

Many small and mid-size Ontario employers still hire on a handshake — or with a brief offer letter that says almost nothing useful. When things go well, that works fine. When someone is terminated after five years, or leaves to work for a competitor, the absence of a proper contract becomes very expensive.

A well-drafted employment contract does three things for an employer. First, it limits termination liability by capping notice at the ESA minimum rather than common law, which can be two years’ salary or more. Second, it establishes the terms of employment so there is no dispute about role, pay, or expectations. Third, it protects confidential information and business relationships through non-disclosure and non-solicitation provisions.

Without a written contract, Ontario courts will imply terms from conduct, custom, and common law — and those implied terms almost always favour the employee.

The ESA Floor: Contracts Cannot Take Away What the Law Gives

Ontario’s Employment Standards Act, 2000 (ESA) sets minimum standards that apply to virtually every non-management, non-professional employee in Ontario. These are the floor. An employment contract can give more — it cannot give less.

Any contract clause that provides less than these minimums is void — but only that clause is voided, not the whole contract. However, if the termination clause attempts to undercut the ESA and is voided, the court defaults to common law reasonable notice, which is far more generous.

New: Employment Information Statement (July 2025)

Effective July 1, 2025, employers with 25 or more employees must provide a written Employment Information Statement to every new hire before their first day of work — or as soon as practicable afterward. This requirement came in under Ontario’s Working for Workers Act amendments.

The statement must include:

• The employer’s legal name and operating name
• Contact information (business address, phone number)
• The employee’s anticipated work location
• Starting wage rate or salary
• Pay period and pay day
• A general description of the employee’s initial hours of work

Practically speaking, a properly drafted employment contract that addresses all of these points satisfies the Employment Information Statement requirement. This is another reason to have a written contract in place before Day 1 — not after.

Key Clauses Every Ontario Employment Contract Needs

Termination Clauses: The Highest-Risk Area

Termination clauses are the most important — and most litigated — element of an Ontario employment contract. Get them right, and you limit termination exposure to the ESA minimum (1 week per year of service, max 8 weeks). Get them wrong, and you are looking at common law reasonable notice, which courts regularly award at 1–2 months per year of service.

For a 10-year employee earning $100,000 per year, the difference is:

• ESA termination pay: 8 weeks = ~$15,385
• Common law reasonable notice (12 months): $100,000

That gap is entirely preventable with a properly drafted termination clause.

What a Valid Termination Clause Must Do

1. Expressly or by necessary implication limit notice to the ESA minimum
2. Not attempt to contract below the ESA on any point — including severance, benefit continuation during the notice period, or the definition of “just cause”
3. Not be triggered by conduct that falls short of the common law standard for just cause (wilful misconduct)

What the Court Will Do If Your Termination Clause Is Invalid

The court strikes the clause and defaults to common law notice. There is no “saved” minimum — the whole clause is gone. This is what makes Waksdale so consequential.

The Waksdale Problem: Why So Many Termination Clauses Fail

In Waksdale v. Swegon North America Inc. (2020), the Ontario Court of Appeal established a rule that most Ontario employers have still not fully grasped: if any part of your termination clause violates the ESA, the entire termination regime in the contract is void — including the without-cause cap you were counting on.

This matters because most older Ontario employment contracts have a “just cause” termination clause that lists grounds for termination without notice (such as theft, fraud, gross misconduct). The problem is that the ESA’s standard for terminating without notice is “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned” — a very high bar. If your for-cause clause uses a lower standard (like “serious misconduct” or simply lists behaviours), it violates the ESA.

Under Waksdale, that defect in the for-cause clause contaminates and voids the without-cause cap — even though the without-cause clause was perfectly fine on its own.

The solution is to review every termination clause currently in use and either:

• Update the for-cause language to track the ESA wilful misconduct standard exactly, or
• Remove the for-cause clause entirely and rely on common law to govern just cause terminations

Non-Compete Clauses: Banned for Most Ontario Employees

The Working for Workers Act, 2021 made Ontario the first jurisdiction in Canada to ban non-compete agreements for most employees. Since October 25, 2021, any non-compete clause in an employment contract — whether new or existing — is void and unenforceable, with two narrow exceptions:

1. C-suite executives (President, CEO, COO, CFO, General Counsel) — non-competes remain permissible
2. Business sale / dissolution — the seller of a business can be bound by a non-compete as part of the sale transaction

What Still Works Instead of a Non-Compete

If your current employment contracts contain non-compete clauses for non-executive employees, those clauses are already void under Ontario law. However, the rest of the contract remains valid. There is no urgency to remove them — they simply have no legal effect — but updating contracts to remove void clauses is good housekeeping.

Probationary Periods in Ontario

Many employers assume a “3-month probationary period” in the contract means they can terminate without any notice during that period. This is partially correct, but there are important nuances.

Under the ESA, employees with less than 3 months of service have no entitlement to termination notice. So a termination within the first 3 months genuinely requires no ESA notice pay. However:

• The ESA 3-month threshold applies whether or not your contract says “probationary period”
• Probationary terminations must still be done in good faith — you cannot terminate a probationary employee for discriminatory reasons under the Human Rights Code
• Common law does not automatically recognize the 3-month probation as limiting rights unless the contract expressly says so
• The Waksdale rule still applies — if your probation clause attempts to cap notice below what the ESA requires after the probationary period, it can create problems

Best practice: a probation clause in an Ontario employment contract should state that during the probationary period (maximum 3 months), the employer may terminate without notice, and that this is consistent with the employee’s entitlements under the ESA.

Contracts That Call an Employee a Contractor

Some Ontario employers try to avoid ESA obligations by classifying workers as independent contractors rather than employees. The problem: the ESA automatically deems a person an employee unless the employer satisfies every element of a multi-factor test. What the contract calls the relationship is not determinative.

The CRA and Ontario courts look at the actual working relationship — level of control, whose tools are used, whether there is profit/loss risk, exclusivity, and integration into the business. If the person works exclusively for you, follows your direction, uses your equipment, and has no other clients, calling them a “contractor” in the contract does not make it so.

Misclassification consequences include:

• CRA reassessment: source deductions (CPP, EI) for years of “contractor” payments, plus penalties and interest
• ESA claims: termination pay, vacation pay, public holiday pay going back the full length of the relationship
• WSIB: unpaid premiums plus interest
• HST: unremitted HST on payments made
• Human Rights Code: contractors cannot bring OHRC claims; employees can

If someone genuinely is an independent contractor, the contract should reflect the real nature of the relationship — and the real relationship must match.

10 Common Employment Contract Mistakes Ontario Employers Make

When to Review and Update Your Contracts

Employment contracts are not set-and-forget documents. Ontario employment law changes frequently — and what was a valid, protective contract three years ago may now be a liability.

Review your employment contracts when:

• There is a major Ontario employment law change (ESA amendments, new Working for Workers Acts)
• A key employee is promoted, changes roles significantly, or gets a substantial pay increase
• You acquire a business and assume existing employees
• An employee is approaching a milestone that changes their termination entitlements (e.g., 5 years of service triggering severance eligibility)
• You have not reviewed them since before 2020 (Waksdale era)

When updating contracts for existing employees, you need to provide consideration — something of value in exchange for signing the new contract. A promotion, raise, or new bonus plan can serve as consideration. Simply asking an employee to “sign this new contract” without anything in return does not create an enforceable contract.

For help reviewing and updating your Ontario employment contracts, the team at HRX Connect works alongside employment counsel to audit existing agreements and identify termination clause risk, non-compete exposure, and ESA compliance gaps. See also our guides on wrongful dismissal in Ontario, termination pay and severance, and constructive dismissal.

Frequently Asked Questions