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Employment Agreement Essentials

Understand the key elements of employment contracts in Canada

Types of employment agreements

Employment agreements in Canada outline the terms and conditions of an employment relationship between an employer and an employee. While a written contract isn't mandatory by law, it's highly recommended for both parties as it provides clarity and reduces the risk of future disputes. There isn't a single standardized employment agreement in Canada. Instead, the specific terms within an agreement can vary depending on the nature of the job and the working relationship. However, there are some key characteristics that categorize different types of employment agreements.

Based on Employment Duration

  • Indefinite-Term Contracts (Permanent): These are the most common type of employment agreement in Canada. They offer employment with no pre-determined end date and continue until terminated by either party following common law termination provisions.

  • Fixed-Term Contracts: These agreements specify a set period of employment, after which the contract ends. Fixed-term contracts can only be renewed for a limited number of times and under specific circumstances as outlined in provincial or territorial employment standards legislation.

Based on Work Schedule

  • Full-Time Employment Contracts: These agreements typically define a standard work week, often around 35-40 hours. However, the exact number of hours can vary depending on the industry and specific role.

  • Part-Time Employment Contracts: Part-time employees typically work less than a standard full-time work week. There's no minimum number of hours mandated by federal law, but provincial or territorial employment standards may have specific regulations.

  • Casual Employment Contracts: Casual employees work on an "as-needed" basis, with no guaranteed hours or set schedules.

  • Seasonal Employment Contracts: These agreements are for positions required only during specific seasons or peak periods. They can be either full-time or part-time.

Essential clauses

Employment agreements in Canada should clearly outline the rights and obligations of both employers and employees.

Core Employment Terms

  • Job Description and Responsibilities: This should provide a clear description of the employee's duties, tasks, and reporting structure.
  • Compensation and Benefits: This should include details regarding salary, bonuses, commissions, vacation time, sick leave, and any other benefits offered.
  • Work Location and Hours: This should specify whether the role is remote, on-site, or hybrid, with specific details about expected work hours.

Termination and Severance

  • Termination Clause: This outlines the grounds and procedures for termination by both employer and employee, including notice periods or severance pay entitlements.

Restrictive Covenants

  • Confidentiality Clause: This protects the employer's confidential information from unauthorized disclosure by the employee.
  • Non-Compete Clause: This limits the employee's ability to work for a competitor after termination.
  • Non-Solicitation Clause: This restricts the employee from soliciting the employer's clients or employees after termination.

Probationary period

Probationary periods are a common feature in Canadian employment contracts, providing a trial period for both employers and employees. A probationary period is a set timeframe at the start of employment where employers evaluate a new hire's suitability for the role. During this period, employers can typically terminate the employee's contract without cause and without severance pay, allowing them to ensure the employee meets performance expectations and fits well with the company culture.

Key Aspects of Probationary Periods

There are several important points to consider regarding probationary periods in Canada:

  • Duration: The typical probationary period in Canada lasts for three months, although some contracts may specify a longer period, up to six months.
  • Contract Clause: For a probationary period to be valid, it must be clearly stated in the employment contract that the employee signs.
  • Employer Obligations: Even during probation, employers have a good faith obligation to fairly assess the employee's performance.
  • Employee Rights: Employees on probation still have certain rights under the Employment Standards Act (ESA) of their respective province.

Termination During Probation

  • Employer Termination: Employers can typically terminate an employee's contract during probation without providing termination notice or severance pay, provided the reason is not discriminatory or in violation of human rights legislation.
  • Employee Termination: Employees are generally not required to provide notice during probation. However, after three months, a week's notice may be customary.

It's important to note that probationary periods are not a free pass for employers to dismiss employees arbitrarily. The courts may question the legitimacy of a termination during probation if it can be shown the employer did not fulfill their obligation to provide a fair assessment.

Confidentiality and non compete clauses

Employment agreements in Canada often include clauses that limit an employee's activities, specifically confidentiality and non-competition clauses. These are designed to protect an employer's legitimate business interests, but they must also respect an employee's right to earn a living.

Confidentiality Clauses

Confidentiality agreements, also known as non-disclosure agreements (NDAs), limit an employee's ability to share certain confidential information related to their employer. This can encompass trade secrets, client lists, or sensitive business strategies. These agreements usually remain in effect even after the termination of employment to continue protecting the employer's interests.

Courts generally enforce confidentiality clauses as long as the information being protected is genuinely confidential and the restrictions are reasonable in terms of scope, time, and geographic area.

Non-Compete Clauses

Non-compete clauses restrict an employee's ability to work for a competitor after their employment ends. These clauses have undergone significant legal changes in recent years.

Federal and Most Provincial Regulations

Historically, non-competition agreements were evaluated based on a common law test of reasonableness. This involved considering factors such as the nature of the employee's role, the sensitivity of the information they had access to, and the duration and geographic scope of the restriction.

However, in October 2021, Ontario significantly limited the use of non-competition agreements. The Employment Standards Act now forbids employers from entering into any agreements with employees that prevent them from working for a competitor after their employment ends. This applies to all employees, regardless of position or seniority.


There are a few limited exceptions to this new rule. Non-competition agreements may still be enforceable for:

  • Sale of a Business: A seller of a business may be subject to a reasonable non-competition clause as part of the sale agreement.
  • Executive Positions: In some cases, highly compensated executives with access to particularly sensitive information may be subject to a narrowly tailored non-competition clause. However, the enforceability of such clauses is highly uncertain.
Other Provinces

While Ontario has taken a strong stance against non-competition clauses, other provinces have not implemented similar bans. However, the common law test for reasonableness still applies, and these clauses are generally difficult to enforce.

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