5 Things to Remember for an Employment Contract as an Employer

Contracts between an employer and an employee can clarify the relationship between the two parties, but not always. Poorly drafted employment contracts may confuse the relationship and open an employer up to a potential lawsuit. Keeping these tips in mind when drafting an employment contract will help employers stay on the same page as their employees.

1. Be wary of non-solicitation and non-competition clauses.

Non-solicitation and non-compete clauses prevent former employees from engaging in conduct that could result in losing business or opportunities for the company. Employers might add these clauses to their employment contracts to prevent leaving employees from trying to use the company’s information and client relationships to compete with or draw business away. Due to recent changes in legislation, these clauses are often unenforceable. If these clauses are not drafted properly, they can be found to be unenforceable or even result in fines for the company. An employment lawyer can clarify the “dos” and “don’ts” in non-solicitation and non-competition clauses.

2. Ensure compliance with various laws and legal principles.

Most employers in Ontario know that their employment contract must comply with the Employment Standards Act (ESA), but many are unaware of the other laws employment contracts must adhere to. In Ontario, these include, but are not limited to, the Ontario Human Rights Code, the Labour Relations Act and the court-created laws of Ontario known as the “common law”. Additionally, if an employer wants to perform work under a federally regulated sector, their employment contracts may need to comply with the Canada Labour Code and the Canadian Human Rights Act. An employment lawyer can aid in determining the governing laws applicable and how the employment contract can be drafted to be in compliance.

3. Be aware of any new or changed employment laws.

Often, employment laws can change quickly. Even minor changes can have a dramatic impact on the interpretation of the law. For example, in the case of Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, the Ontario Superior Court ruled that a termination clause was invalid because it was overly broad. Specifically, the clause gave the employer the power to terminate the agreement “at its sole discretion” and “at any time”. The court ruled that this violated the ESA because it gave the employer the power to terminate the agreement in circumstances that violate the ESA, such as when an employee returns from leave (s. 53) or in retaliation for attempting to exercise a right under the Act (s. 74). Cases like this emphasize the importance of keeping up to date with current employment laws and regulations. New cases can render contracts that were once thought to be binding to be unenforceable. An employment lawyer can review new and existing employment contracts and advise on new or recently changed employment laws that may result in adapting your employment contracts.

4. Ensure that proper ESA entitlements will be paid in the event of termination.

Under the ESA, an employee who has worked for their employer for more than 3 months is entitled to 1 week of notice of termination or pay in lieu and this entitlement reaches the maximum of 8 weeks when the employee has worked for the employer for 8 years or more. During the notice of termination period, the employee should be paid any benefits or bonuses owed, along with accrued vacation.

An employee who has worked for their current employer for at least five years must be paid severance if one of the following conditions exists:

1. The employee is included in a layoff involving 50 or more employees within a six-month time frame.
2. The employer has a global payroll of over $2.5 million.

The current formula for determining severance from the ESA is one week of pay for every year of work up to 26 weeks.

However, if an employment contract does not give the minimum amount of ESA entitlements noted above or is interpreted as contracting out of the ESA, then an employee may be eligible under common law for up to 24 months (2 years) of reasonable notice depending on various factors such as the employee’s age, the length of service, and position. Employers need to clarify in their employment contracts that employees are only entitled to the ESA standards, otherwise, they may be liable to pay more than the ESA minimum of 26 weeks of severance and 8 weeks of notice.

5. Clarify the job description.

A job description is more than just a helpful description for applicants. It can often serve as the bedrock for determining what is and is not a part of the relationship between an employee and an employer. In many cases, job descriptions need to have certain information listed about the job being advertised. For example, if a job requires the performance of physical labour, it is best to provide that information upfront so as not to confuse applicants about the requirements of the job. Having an Employment lawyer review job descriptions before posting them would be a recommended strategy to avoid any potential ambiguities between what employers and employees expect from this relationship.