Why Every Ontario Employer Needs Proper Employment Contracts
If you run a business in Ontario and your employees don't have written employment contracts, or you're using a template you found online - you are most likely exposed to far more legal and financial risk than you realize.
I help employers draft employment contracts, and I also represent employees in wrongful dismissal claims. That second part is important, because it means I see, regularly, what happens when an employer doesn't have a proper contract in place - and it is rarely good news for the employer.
This article is a straightforward explanation of why employment contracts matter, what they can (and can't) protect you from, and some of the most common mistakes I see employers make.
The Big One: Controlling Termination Costs
The single most important reason to have a written employment contract is to manage what happens when you need to let someone go.
Without a written contract containing a valid termination clause, any employee you terminate is entitled to what's called "common-law reasonable notice." I've written about this in more detail in my article on wrongful dismissal, but the short version is this: common-law notice is typically around one month of salary and benefits for every year an employee has worked for you, up to a rough ceiling of about 24 months.
That adds up fast. A mid-career employee with eight years of service could be entitled to eight months or more of their full compensation - salary, benefits, bonus, car allowance, everything they would have earned had they kept working. For a senior employee earning $120,000 a year, that's potentially $80,000 or more, just to end the employment relationship.
A properly drafted termination clause can limit your obligations to the minimums required by the Employment Standards Act. For that same eight-year employee, that would be eight weeks – about $18,500. For just this one employee, the difference between a verbal contract, and a well drafted employment contract could easily be $60,000 or more, and that gap only grows the longer the employee stays.
The Catch: Most Termination Clauses Don't Work
Here's the problem. Employment contract law in Ontario is, to put it plainly, a minefield for employers, and the courts have spent the last several years making it even more so.
In 2020, in the case Waksdale v. Swegon, the Ontario Court of Appeal ruled that the slightest error in the termination clause renders the entire clause void. That means that, in some cases, a single wrong word in the wrong place means that terminated employees are entitled to the full amount of common-law notice – about one month per year of service, sometimes more – rather than the ESA minimum of about one week per year of service, capped at eight weeks.
This decision has been upheld numerous times since 2020, with the great majority of employment law cases finding for the employee and ruling that the termination clause in their contract is void. There are only a small handful of cases upholding termination clauses since 2020; however, they do exist; courts do enforce carefully drafted clauses using very precise phrasing.
Likewise, nearly all employment contracts I review in the course of representing employees have termination clauses that are very unlikely to hold up. This is genuinely one of the biggest areas of legal risk for Ontario employers, and most don't realize it until they're already facing a demand letter.
Beyond Termination: What Else a Good Contract Does
While the termination clause is the headline, a well-drafted employment contract protects your business in several other important ways.
Confidentiality provisions ensure that employees understand their obligations regarding your proprietary information, client lists, pricing strategies, and trade secrets - both during and after their employment. While some common-law protections exist even without a written agreement, a clear contractual term is far easier to enforce and sets expectations from the outset.
Intellectual property clauses clarify that work product created during employment belongs to the business. Without a written agreement, ownership of IP created by employees can become genuinely complicated, particularly for creative, technical, or product-development roles.
Non-solicitation clauses can prevent departing employees from poaching your clients or recruiting your other staff for a reasonable period after they leave. These need to be carefully drafted to be enforceable - courts will strike down clauses that are too broad. However, when done properly, they offer real protection for your client relationships.
Probationary periods can also be established contractually, allowing you to assess new hires with reduced termination obligations during an initial period - but again, only if the clause is properly drafted to comply with the ESA.
The Most Common Mistakes I See
Having reviewed numerous employment contracts from both the employer and employee side, a few patterns come up repeatedly.
Using templates or copying from other businesses. Employment contract law is jurisdiction-specific and changes frequently. A template that was fine in 2019 may be actively harmful in 2025. A contract drafted for Alberta law is not appropriate for Ontario. Even a contract drafted by an Ontario lawyer a few years ago may need updating in light of recent case law. Surprisingly frequently, I see employers using contracts clearly written for American employment law – referring to concepts which do not exist in Canada, and which were clearly downloaded from the internet.
Not providing fresh consideration. If you want an existing employee to sign a new contract - say, because you've realized your old contracts are unenforceable - you generally can't just hand them a new contract and tell them to sign it. Under Ontario law, continuing employment alone is generally insufficient consideration for a new contract. You typically need to provide something new and meaningful: a raise, a promotion, a signing bonus, or some other tangible benefit. Getting this wrong means the new contract is just as unenforceable as the old one.
Not having a contract ready before the employee starts. This sounds obvious, but I have seen situations where an employer did not have a contract ready before their employee's first day, and the employee simply began working without having signed anything. This creates real problems. Once someone has started working, any contract you ask them to sign after the fact faces the same consideration issue described above - continuing employment alone is generally not enough to support a new agreement. You may also have difficulty establishing that terms you considered agreed upon were ever actually accepted. The time to have a signed contract is before day one, not after.
Drafting overly aggressive clauses. There is a natural temptation to make contractual terms as restrictive as possible - the longest non-solicitation period, the broadest confidentiality definition, the most limited termination entitlements. But in Ontario employment law, overreaching is penalized: a clause that is unreasonable may not just be trimmed to what's reasonable, but thrown out entirely. Restraint and precision in drafting is genuinely more protective than an aggressive approach.
What This Means For You
If you are an Ontario employer, the question is not whether you need employment contracts - you do. The question is whether the ones you have actually work.
If you don't have written contracts at all, every termination is potentially a five or six-figure exposure. If you have contracts but they haven't been reviewed recently, they are likely void, due to Waksdale. And if you're using templates from the internet, you are very likely in worse shape than if you had no contract at all, because you may be making decisions based on protections that don't actually exist.
I draft employment contracts as part of my practice, and I approach them from the perspective of someone who also regularly challenges them on behalf of employees. That means I know what courts are actually scrutinizing, what language is surviving challenges, and where the current pressure points are in the case law.
If you'd like to discuss putting proper contracts in place for your team, or having your existing contracts reviewed, you can contact me here or email me at charlotte@andromeda.law. I'm happy to take a look at where things stand and talk through what might make sense for your business.
Charlotte Miller a sole practitioner at Andromeda Law, an online Ontario law practice focused on employment law and estate planning. She can be reached at charlotte@andromeda.law.
