MJ LAW

Employment Contract Essentials: What Every Employee and Employer Should Know in Ontario

Introduction

In today’s changing workplace, a clear and well-drafted employment contract is more important than ever. Whether you’re an employer hiring your first staff member or an employee accepting a new position, the employment agreement defines your rights, responsibilities, and the terms of your relationship.

In Ontario, employment contracts are legally binding documents that set expectations from the very beginning. They provide protection, reduce misunderstandings, and help prevent future disputes.

At MJ Law Services, we’ve seen how strong employment contracts can save both employers and employees time, stress, and money. This guide explains what every worker and business owner should know before signing on the dotted line.

1. What Is an Employment Contract?

An employment contract is a written or verbal agreement between an employer and an employee outlining the terms of employment.

While some jobs begin with an informal handshake, Ontario’s employment laws recognize both written and verbal contracts. However, written agreements are always preferred — they provide clear evidence of each party’s rights and obligations.

A good contract defines more than just pay and hours. It clarifies how the employment relationship begins, how it can end, and what happens in between.

2. Why Employment Contracts Matter

Employment contracts protect both sides:

  • For Employers: They help prevent disputes, define duties, and protect confidential information.
  • For Employees: They ensure fair treatment, stability, and transparency regarding job expectations and compensation.

Without a clear agreement, misunderstandings can arise about pay, benefits, or notice periods when employment ends.

3. Types of Employment Contracts

Ontario employers commonly use three types of employment contracts:

A. Permanent (Indefinite) Contracts

These have no fixed end date. Employment continues until either party terminates the relationship, subject to legal notice requirements.

B. Fixed-Term Contracts

These specify an exact end date. They’re often used for seasonal work, projects, or temporary coverage. However, improperly drafted fixed-term agreements can expose employers to full termination liabilities.

C. Independent Contractor Agreements

Sometimes, individuals work as self-employed contractors rather than employees. These relationships must be defined carefully to comply with employment standards and tax laws.

4. Key Elements Every Employment Contract Should Include

A well-written employment contract should cover these essential terms:

  1. Job Title and Duties
    A clear description of the role and responsibilities prevents confusion and helps evaluate performance.
  2. Compensation and Benefits
    Specify salary, hourly rate, commissions, or bonuses. Include information about vacation, sick leave, and benefits.
  3. Hours of Work
    Define regular hours, overtime expectations, and whether overtime will be compensated.
  4. Probationary Period
    Many contracts include a probationary period, allowing employers to evaluate new hires before confirming permanent employment.
  5. Termination Clauses
    One of the most important sections — it sets out how much notice or pay an employee is entitled to if employment ends. These clauses must comply with Ontario’s Employment Standards Act (ESA) to be enforceable.
  6. Confidentiality and Non-Disclosure
    Protects company secrets, client data, and intellectual property.
  7. Non-Competition and Non-Solicitation Clauses
    Limits what employees can do after leaving, such as working for competitors or contacting clients. These must be reasonable in scope and duration to hold up in court.
  8. Dispute Resolution
    Specifies how disagreements will be handled — through mediation, arbitration, or court proceedings.
  9. Governing Law
    States that the contract is governed by the laws of Ontario.
  10. Signatures
    A contract is only valid once both parties sign it.

5. Common Mistakes to Avoid

Even well-intentioned employers can make costly errors. Here are common pitfalls:

  • Using outdated templates that don’t align with Ontario’s employment laws.
  • Failing to review contracts regularly as laws and company policies evolve.
  • Omitting termination provisions, which can lead to expensive wrongful dismissal claims.
  • Not providing the contract before the first day of work — contracts signed after starting may not be enforceable.
  • Ambiguous or contradictory language that creates confusion or legal loopholes.

6. Understanding Termination Clauses

A termination clause is one of the most scrutinized parts of any contract.

Under Ontario’s Employment Standards Act, employees are entitled to minimum notice or pay in lieu when their employment ends without cause. A valid termination clause can limit notice to these statutory minimums — but only if it’s clearly worded and compliant with the law.

If a termination clause violates the ESA or is poorly drafted, courts may strike it down, awarding much greater compensation under common law.

Both employers and employees should have these clauses reviewed before signing.

7. Probationary Periods — What They Really Mean

Many contracts include a 3- or 6-month probationary period. During this time, employers assess the employee’s suitability for the role.

However, probation does not remove all legal obligations. Employers must still comply with the ESA, which requires minimum notice (or pay in lieu) after three months of employment.

Employees should also understand that “probationary” does not automatically mean “no rights.”

8. Remote Work and Modern Employment Terms

With the rise of remote and hybrid work, contracts now often include clauses addressing:

  • Work-from-home expectations
  • Equipment and expense reimbursements
  • Confidentiality in home environments
  • Data security and privacy obligations

Clearly outlining these terms helps prevent future misunderstandings and ensures compliance with privacy laws.

9. How to Review an Employment Contract Before Signing

For employees:

  • Read every clause carefully before signing.
  • Don’t hesitate to ask for clarification or request changes.
  • Keep a signed copy for your records.

For employers:

  • Provide the contract in advance, giving the employee time to review.
  • Use clear, plain language.
  • Ensure all terms align with employment laws.

A mutual understanding from the start builds trust and reduces legal risk.

10. The Role of Legal Guidance

Employment law in Ontario is detailed and constantly evolving. Seeking professional legal advice before signing or issuing a contract can help:

  • Ensure compliance with the Employment Standards Act
  • Prevent costly disputes
  • Protect your organization’s interests or employee rights
  • Tailor agreements to your specific industry and position

At MJ Law Services, we assist both employers and employees in drafting, reviewing, and interpreting employment contracts that align with Ontario law and workplace best practices.

Conclusion

A solid employment contract sets the tone for a successful working relationship. It ensures both parties understand their rights, obligations, and expectations from day one.

Whether you’re starting a new job or growing your business, taking the time to get the agreement right can prevent misunderstandings and costly disputes down the road.

Call to Action

If you need help drafting, reviewing, or updating an employment contract, MJ Law Services can assist.
Our team provides personalized guidance to ensure your agreement is fair, compliant, and clear.

Email: mjlawservices@gmail.com
Mobile: 647-787-0815
Phone: 647-660-9666

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