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- Employment Contracts in Canada: A Guide for Employers
Employment Contracts in Canada: A Guide for Employers
- Employment Contract
Ed Matei, General Counsel
(Last updated )
Ed Matei, General Counsel
(Last updated )
Jump to section:
- What is an employment contract in Canada?
- What are the advantages of employment contracts in Canada over written employment statements?
- What is included in an employment contract in Canada?
- How are employment contracts different from offer letters in Canada?
- What are the different types of Canadian employment contracts?
- What are indefinite-term contracts in Canada?
- What are fixed-term contracts in Canada?
- What are independent contractor agreements?
- Some basic terms of employment to address in your job contracts are:
- What are some things to keep in mind while drafting employment contracts in Canada?
- Here are some best practices to follow while creating Canadian employment contracts:
- Should I include a confidentiality clause?
- What is a non-solicitation clause?
- Does an employment agreement need to include a probationary period?
- What happens if an employee breaches an employment contract in Canada?
- Are employment contracts legally binding in Canada?
- Are you looking for more information on Canadian employment contracts?
A comprehensive and clearly worded employment contract is essential to protect the interests of your business and your staff. An employment contract is mutually beneficial to both the employer and employee as it provides clarity on the rights and responsibilities of both parties. A well-drafted agreement also reduces the risk of legal claims for the employer.
What is an employment contract in Canada?
An employment contract (also called employment agreement) is a legally binding agreement that governs the employment relationship between employers and employees. It details the employee’s rights, responsibilities, and recourses.
What are the advantages of employment contracts in Canada over written employment statements?
Starting July 1, employers in Ontario with 25 or more employees must provide new staff with written details about their employment or written employment statements, before their first day of work. These written employment statements simply provide information to the employee such as pay periods, hours, and employer contact information – they do not provide any sort of protection to the employer.
A good contract can satisfy the requirements of a written employment statement while also protecting your business from wider legal risks and claims.
A contract is a legal agreement that sets down the terms of employment. It:
•
Reduces legal risks:
limits common law liability during terminations
•
Provides flexibility for business needs:
like permitting temporary layoffs or notice periods for resignation
•
Strengthens teams:
sets clear expectations for employees
•
Resolves disputes:
serves as a legally binding agreement on job terms
WHEREAS simply providing the required job terms in an employment statement:
• Confirms starting employment details
• Does not legally bind the employee to anything
• Provides no protections to the employer in case of a dispute or claim
Outlined below is key information that employers should know about employment contracts.
What is included in an employment contract in Canada?
Employment contracts generally detail compensation, when employment starts, how it may end, expectations, and more. Contracts should be finalized and signed
before
employees start in the role. Doing so not only avoids future confusion or disagreements over the scope of their role but also helps ensure that the contract is enforceable.
An employment contract that clearly defines the terms of employment can serve as a reference guide in case of a disagreement. Employment contracts may sometimes include dispute resolution procedures that help avert long legal battles and the time and costs associated with them.
How are employment contracts different from offer letters in Canada?
In Canada, an offer letter confirms the job basics, while an employment contract sets the full legal terms – they typically come together when a job is offered. Relying only on an offer letter results in no contractual protections to the employer. Without an enforceable termination provision in an employment contract, employers may owe significantly higher sums on employees’ terminations and having their hands tied when needing to make difficult business decisions.
What are the different types of Canadian employment contracts?
There are two main types of employment contracts in Canada:
Indefinite-term contracts
Fixed-term contracts
What are indefinite-term contracts in Canada?
Indefinite-term contracts refer to a contract for a job that does not have an end date.
When indefinite-term contracts are ended without cause, employees are entitled to notice of termination and/or termination pay.
Terminations for cause are rarely justified and often a risky proposition, but where circumstances are appropriate employers are not required to provide notice of termination or termination pay.
What are fixed-term contracts in Canada?
Under fixed-term contracts, the employment relationship exists for a fixed or specified period. Since the termination date is agreed upon before commencing the employment, no notice or pay in-lieu is required when the contract term ends.
Terminations with or without cause can also take place in fixed term contracts. Where a contract is terminated before the end of the fixed term, the employee may be entitled to the remaining income they would have earned through to the end of the fixed term. For this reason, implementing fixed-term contracts requires careful planning and consideration.
What are independent contractor agreements?
These agreements are entered into with self-employed individuals or freelancers. As independent contractors are not employees, they are not covered by the applicable employment standards legislation.
Independent contractor agreements have significantly wider constraints in terms of what you can or can’t do, given that independent contractors are not subject to the same protections employees are under employment standards legislation.
However, simply calling an employee an independent contractor does not relieve the company of their responsibilities as an employer. Assessing whether a worker is an employee or independent contractor is a legal analysis of factual circumstances. Companies should be wary of hiring only independent contractors when their roles are indistinguishable from employees.
Some basic terms of employment to address in your job contracts are:
Hours of work
Job responsibilities
Salary, bonus, benefits
Conditions of offer (reference check, background check, and so on)
Privacy and confidentiality clauses
Temporary layoff clause (giving the employer the contractual right to alter certain terms of employment when needed)
Termination clause
What are some things to keep in mind while drafting employment contracts in Canada?
Employers, especially those operating a nationwide business, should remember that employment law varies across provinces. The terms and provisions that are enforceable in an Ontario employment contract may not be in a BC employment contract or one for Alberta.
To be considered valid, your job contract must follow the minimum terms and entitlements (wages, work hours, leaves of absence, etc.) set by the employment standards legislation in your province. While employers are free to offer more benefits to employees, they cannot provide less than the minimum entitlements outlined in their province’s employment standards act.
Here are some best practices to follow while creating Canadian employment contracts:
Provide the employee with adequate time to review the contract
Giving the employee several days to one week to review the contract allows them to thoroughly peruse it and seek independent legal advice if they wish to do so.
Have the contract signed prior to the first day of work
The employee should agree to the terms of their employment before beginning work. Having a work contract signed after the employee’s start date can result in the contract as a whole being unenforceable.
Always use clear, detailed language
Any wording in your work contract that is vague or leaves room for ambiguity may expose you to potential legal claims.
Include a clear termination clause
A clear termination clause limits how much notice or termination pay an employer must provide if the employment ends.
Without one, there is a presumption of employees being entitled to common law notice, which is often much higher and more costly. A clear termination clause protects employers and avoids expensive disputes.
Update your employment contract
Employers should update their employment contracts and policies in compliance with changing legislation and legal requirements. At times, the modifications required may be due to internal changes, such as business restructuring, pay raises, promotions, etc.
It is critical to keep in mind that employers should be careful about making significant changes to material terms of employment (such as salary, location, work hours, etc.). Doing so in the absence of mutual agreement or contractual rights may be considered constructive dismissal and may lead to litigation over damages no different than if the employee were terminated.
Should I include a confidentiality clause?
Employment agreements often have a confidentiality clause, which protects a company’s information from being shared externally. Confidentiality clauses prohibit employees from sharing this information during, and after, their employment.
A confidentiality clause is what is known as a restrictive covenant. Restrictive covenants effectively restrict an employee from certain actions such as poaching clients or disclosing private company information.
What is a non-solicitation clause?
Another restrictive covenant that can be included in an employment contract is a non-solicitation clause, where the employee is prohibited from hiring or enticing staff or clients away from the employer during or after their employment.
Does an employment agreement need to include a probationary period?
A probationary period is the duration of time in which an employer has the right to terminate an employee without notice. It is up to the employer how long their probation period is. However, provincial employment legislation typically caps it at 3 months after which minimum notice pay is required. An employer does not need to include a probationary period in an employment agreement.
Additionally, the applicable Employment Standards legislation provides employers with guidelines on a province-by-province basis for probationary periods, typically establishing three months. During these three months, if an employee or employer choses to end the employment relationship, no notice is required.
Importantly, there is no presumed notice-free probationary period. Much like limiting liability on without cause termination, the same thing must be addressed in the contract.
If an employer chooses to extend the probationary period past the legislative amount (to say, six months instead of three) the employer/employee must provide notice of termination/resignation as per the applicable Employment Standards law. This ensures employers cannot escape their duties to employees at termination by continuously extending the probationary period.
What happens if an employee breaches an employment contract in Canada?
Disputes over employment contracts most commonly stem from the termination provision and concern what a terminated employee is entitled to upon dismissal.
While an employer may have some recourse against employees where they breach a contract (such as not giving enough notice on resignation), typically the biggest danger is that the employer breaches the terms of the contract. In the latter case, the protections afforded by that contract may be ineffective. This means that it is not just important that the contract be written well, but that the employer’s actions do not amount to breaching the contract.
Are employment contracts legally binding in Canada?
To be legally binding, an employment contract must be formed by offer, acceptance and consideration. To be enforceable, the contract must fulfill the essential elements of a binding contract at common law and must not contravene any applicable legislation.
Are you looking for more information on Canadian employment contracts?
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