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An employment contract is a legally binding agreement between an employer and an employee that sets out the terms and conditions of the working relationship — including pay, hours, job duties, and what happens when employment ends. In Ontario, every employee has an employment contract — even if nothing was ever signed.
What is an employment contract?
An employment contract is the foundation of every working relationship. It is the agreement — formal or informal, written or verbal — between a person who agrees to do work and an employer who agrees to pay them for it. The contract defines the rules of that relationship: what the employee will do, what they will be paid, what benefits they will receive, and what happens if things do not work out.
Most people think of an employment contract as a formal document they sign on their first day. But under Ontario law, a contract can exist even when nothing is written down. If you were offered a job, accepted it, and showed up to work — you have an employment contract. The terms may come from the conversation you had, the offer letter you received, or simply from what the law requires.
Written vs. verbal employment contracts
Employment contracts in Ontario come in different forms. Understanding the difference matters — especially if a dispute ever arises.
WRITTEN CONTRACT
A formal document that both parties sign. It sets out all the key terms clearly and in writing. This is the most common form used by businesses in Ontario — and the most protective for both sides.
Best practice for employers and strongly recommended for employees to request.
VERBAL CONTRACT
An agreement made through spoken words — a phone call, an interview, or a conversation where the job offer was made and accepted. It is still legally binding in Ontario, but much harder to prove if a dispute arises.
Creates significant uncertainty for both parties. Avoid where possible.
IMPLIED CONTRACT
A contract that exists based on the conduct of both parties and the circumstances of the job — even when nothing was formally agreed. Ontario courts regularly recognize implied contracts and enforce their terms.
Common for long-standing employees where practices have evolved over time.
FIXED-TERM CONTRACT
A contract that has a set end date — for example, a one-year contract or a contract for a specific project. When the term ends, so does the employment. However, if the employer ends it early, significant legal obligations may arise.
Often used for contract workers, seasonal roles, or project-based positions.
What should an employment contract include?
A well-drafted employment contract protects both the employee and the employer. Here are the key terms every contract in Ontario should address:
A clear description of the role, what the employee is expected to do, and who they report to. Vague job descriptions cause disputes when expectations are not met on either side.
The salary or hourly rate, when and how it is paid, any bonuses or commissions, and what benefits are included — health, dental, pension, life insurance. If bonuses are part of the package, the contract should explain how they are calculated and when they are paid.
The regular hours expected each week, the work schedule, and whether overtime is expected or compensated. This must comply with Ontario’s Employment Standards Act, which caps required hours and sets overtime rules.
How much vacation the employee receives and when it can be taken. In Ontario, the ESA guarantees a minimum of two weeks of vacation after one year of employment — but many contracts offer more. Statutory leaves such as parental leave and sick leave must also comply with the ESA regardless of what the contract says.
This clause sets out what the employee will receive if they are let go. A well-written termination clause limits the employer’s obligation to the ESA minimum — and courts will enforce it if it is properly drafted. A poorly written clause — or no clause at all — leaves the employer exposed to common law notice, which can be dramatically higher. For employees, this clause determines how much you walk away with if you lose your job.
Many contracts include a clause preventing the employee from sharing confidential business information, client data, or trade secrets — both during and after employment. These clauses are generally enforceable in Ontario if they are reasonable in scope.
A non-solicitation clause prevents a departing employee from poaching clients or colleagues. A non-compete clause tries to stop them from working for a competitor. In Ontario, non-compete agreements are now largely unenforceable for most employees following changes to the ESA — with limited exceptions for executives and in business sale contexts. If your contract contains one of these, it is worth having a lawyer review it.
What the contract cannot do — the ESA floor
An employment contract cannot take away rights that Ontario law guarantees. The Employment Standards Act sets a minimum standard — a floor — that every employer must meet regardless of what the contract says. If a contract tries to give an employee less than the ESA minimum, that part of the contract is void and unenforceable.
Example: A contract states that an employee is entitled to only one week of notice regardless of how long they work there. This clause is unenforceable because Ontario law guarantees at least one week per year of service, up to eight weeks. The contract cannot legally reduce what the ESA provides. The employee would be entitled to their full ESA minimum — and potentially much more under common law.
When does an employment contract become a problem?
Most employment contracts work fine when the relationship is going well. The problems usually surface when things go wrong — when someone is let go, when terms are changed without agreement, or when disputes arise over bonuses or benefits. Here are the situations where contracts most commonly cause legal issues:
Termination clauses that violate the ESA
If a termination clause was poorly drafted and fails to meet the ESA minimum, courts will void it — leaving the employer liable for common law notice instead.
Changes made without agreement
If an employer changes key terms — salary, role, location — without the employee’s agreement, it may amount to constructive dismissal regardless of what the contract says.
Signing without reading or understanding
Many employees sign contracts on their first day without reading them — and discover years later that they agreed to terms that significantly reduced what they were owed.
No written contract at all
Without a written contract, disputes about pay, notice, and duties are decided by courts — often in ways that cost employers far more than a well-drafted contract would have.
Should you get your employment contract reviewed?
If you are an employee: Yes — especially before you sign a new contract or if you are being asked to sign a new one mid-employment. The termination clause alone can be worth thousands — sometimes tens of thousands — of dollars. Understanding what you are agreeing to before you sign costs very little. Discovering what you agreed to after you are let go can cost you far more.
If you are an employer: A contract that is not properly drafted is often worse than no contract at all. A poorly worded termination clause, for example, can leave you on the hook for months of notice pay when a well-drafted clause would have limited your exposure to the ESA minimum. An employment lawyer can draft or review contracts that actually hold up when tested.
The bottom line: An employment contract is not just paperwork. It is the document that governs your rights if things go wrong. Whether you are starting a new job, hiring your first employee, or dealing with a dispute, understanding what your contract says — and what it cannot take away — is one of the most important things you can do to protect yourself.
