Your Employment Agreement Is Not a Suggestion — Why Every Clause Matters

The Document Nobody Reads

Here is a depressing statistic that every employment lawyer knows but nobody publishes: the vast majority of employees sign their employment agreements without reading them carefully. They skim the salary, check the start date, and sign the last page. The termination clause, the restrictive covenants, the intellectual property assignment, the entire-agreement provision — all of it goes unread.

This is understandable. You just got a job offer. You are excited. The agreement is long, dense, and written in legal language designed to be precise rather than readable. Your new employer is waiting for a signed copy. You don't want to look difficult.

But every clause in that agreement has a purpose. And the purpose, in most cases, is to define what happens when things go wrong. The employment agreement is not a celebration of the beginning of your employment — it is a pre-negotiated plan for the end of it.

The Termination Clause: The Most Important Clause You'll Ever Sign

The termination clause determines what you receive when your employment ends. It is, dollar for dollar, the most consequential provision in any employment agreement.

Without a termination clause, an employee who is terminated without cause is entitled to common law reasonable notice — a standard developed by courts over decades that can result in notice periods of 12 to 24 months or more. The factors driving this calculation were established in Bardal v. Globe & Mail Ltd., [1960] OJ No 149 (ONHC): character of employment, length of service, age, and availability of similar employment.

With an enforceable termination clause, the employer can limit the employee's entitlement to the statutory minimums under the Employment Standards Act, 2000 (ESA) — which caps out at eight weeks of notice for most employees. The difference between common law and ESA entitlements can be enormous — potentially hundreds of thousands of dollars for senior employees.

But the clause must be enforceable. And since the Ontario Court of Appeal's decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391, the enforceability threshold has never been higher.

The Waksdale Revolution

Before Waksdale, the conventional wisdom was that termination clauses were evaluated independently. If the without-cause clause was ESA-compliant, it didn't matter if the for-cause clause was defective — the employer could rely on the compliant clause.

Waksdale demolished this approach. The Court of Appeal held that termination provisions must be read as a whole. If any part of the termination scheme violates the ESA, the entire scheme is void. A single defective clause — even one the employer never intended to use — destroys the entire termination framework and entitles the employee to common law reasonable notice.

The most common defect: for-cause clauses that deny all notice and severance upon termination for "just cause." The problem is that the ESA standard for disentitlement — "wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned" — is narrower than the common law "just cause" standard. A clause that denies entitlements at the common law threshold necessarily denies entitlements that would be owed under the ESA, because some conduct that constitutes common law just cause does not meet the ESA's higher standard of wilful misconduct.

The result: thousands of employment contracts drafted before Waksdale — and many drafted after it by lawyers who didn't get the memo — contain unenforceable termination clauses. The employees bound by those contracts have full common law entitlements, whether they know it or not.

What an Enforceable Termination Clause Looks Like

Post-Waksdale, a compliant termination clause must:

1. Provide at least ESA minimums in all scenarios — including for-cause termination
2. Reference benefit continuation during the statutory notice period
3. Distinguish between termination pay and severance pay as separate ESA entitlements
4. Avoid language suggesting employer discretion over statutory entitlements
5. Use "wilful misconduct" rather than "just cause" if disentitling the employee from ESA minimums upon for-cause termination
6. Include a "floor" or "greater of" provision ensuring the employee receives at least ESA entitlements regardless of the contractual language

Even with all of these elements, the clause must be brought to the employee's attention at the time of hiring — not after the employee has already started work. An employment agreement signed after the first day of employment, without fresh consideration, may not be enforceable at all.

Probationary Clauses: Less Than Meets the Eye

Most employment agreements contain a probationary clause — typically stating that the first 90 days are a "probationary period." Employers universally believe this means they can terminate the employee during probation with no cost. This belief is wrong.

A probationary clause that merely labels a period of time without specifying the legal consequences of termination during that period is, for practical purposes, meaningless. In Nagribianko v. Select Wine Merchants Ltd., 2014 ONSC 4216, the Ontario Superior Court held that a vague probationary clause does not displace the common law presumption of reasonable notice.

For a probationary clause to limit the employer's obligations, it must explicitly state what the employee receives upon termination during probation — for example, "During the probationary period, the employer may terminate employment upon providing ESA minimum notice or pay in lieu." A clause that says "the first 90 days are probationary" without more is legally insufficient.

And even a well-drafted probationary clause cannot override the ESA. After three months of continuous employment, the statutory minimums apply regardless of any probationary language. Human rights protections apply from day one.

Restrictive Covenants: Non-Competes, Non-Solicitation, and Confidentiality

Restrictive covenants are the clauses that limit what you can do after your employment ends. They come in three main varieties, and the legal treatment of each is fundamentally different.

Non-Compete Clauses

Since October 25, 2021, Ontario's Working for Workers Act, 2021 (Bill 27) has prohibited non-compete agreements for most employees. The ban applies regardless of the scope, duration, or geographic limitation of the clause. You cannot be required to sign a non-compete as a condition of hiring, continued employment, or departure.

Exceptions exist for C-suite executives and in the context of business sales. But for the vast majority of Ontario employees, non-compete clauses in employment agreements are unenforceable — and the employer cannot penalize you for refusing to sign one.

Pre-ban non-competes (those signed before October 25, 2021) remain subject to common law analysis. Under Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, the Supreme Court established that restrictive covenants must be clear, unambiguous, and no broader than reasonably necessary to protect the employer's legitimate interests. Courts cannot rewrite overbroad clauses — if the clause is unreasonable, it fails entirely.

Non-Solicitation Clauses

Non-solicitation clauses — which prevent you from actively pursuing your former employer's clients, customers, or employees — remain fully enforceable in Ontario, subject to common law reasonableness requirements.

But "enforceable" requires precision. A non-solicitation clause must clearly define what constitutes "solicitation," identify the protected relationships with reasonable specificity, and impose a reasonable time limitation. A clause that prohibits contact with "all clients of the company for a period of three years" is almost certainly overbroad and unenforceable. A clause that prohibits active solicitation of "clients with whom you had material contact during the last 12 months of employment, for a period of 12 months following termination" has a much better chance of surviving judicial scrutiny.

Confidentiality and Non-Disclosure

Confidentiality obligations are entirely unaffected by legislative changes. Employers can — and routinely do — require employees to protect trade secrets, proprietary information, client lists, and other confidential business information after the employment ends.

Confidentiality clauses are generally the most defensible of the restrictive covenants because they protect a clearly identifiable interest (proprietary information) without restricting the employee's ability to earn a living. The employee can work anywhere they want — they just can't take the employer's secrets with them.

Intellectual Property Clauses

Many employment agreements contain intellectual property (IP) assignment clauses, which typically state that all work product created during the employment — and sometimes before and after it — belongs to the employer. These clauses are particularly important in technology, creative, and research-oriented industries.

The default rule under Canadian copyright law (Copyright Act, R.S.C. 1985, c. C-42, s. 13(3)) is that where an employee creates a work in the course of their employment, the employer is the first owner of copyright unless there is an agreement to the contrary. But "in the course of employment" is not the same as "during employment." Work you create on your own time, using your own resources, for your own purposes, may not fall within this default — unless your employment agreement specifically captures it.

Employees should pay close attention to IP clauses that extend beyond the scope of their actual duties, that capture work created before the employment began, or that require assignment of inventions conceived entirely outside the employment relationship. These clauses may be enforceable, but they require careful consideration before signing.

The Entire Agreement Clause

Almost every employment agreement contains an "entire agreement" clause — a provision stating that the written agreement constitutes the entire agreement between the parties and supersedes all prior negotiations, representations, and understandings.

The purpose is straightforward: to prevent the employee from arguing that verbal promises made during the hiring process — "we never fire anyone," "your bonus is basically guaranteed," "you'll definitely get promoted" — form part of the contract. If the entire agreement clause is enforceable, the written document is the whole deal.

Courts have generally upheld entire agreement clauses, though their effect is not absolute. In cases involving fraud or misrepresentation, courts may look beyond the written agreement regardless of the entire agreement clause. And where an employer makes a false representation that induces an employee to accept the position, the employee may have a claim for negligent or fraudulent misrepresentation even in the presence of an entire agreement provision.

Bonus and Incentive Provisions

Bonus clauses are among the most frequently litigated provisions in employment agreements. The central question is: what happens to bonus and incentive entitlements when the employee is terminated?

In Paquette v. TeraGo Networks Inc., 2016 ONCA 618, the Ontario Court of Appeal established that terminated employees are presumptively entitled to bonus and incentive compensation during the reasonable notice period — unless the employer can demonstrate that the plan unambiguously and clearly removes that entitlement upon termination.

The standard is demanding. Language like "employees must be actively employed on the payment date to receive their bonus" has been interpreted by some courts as merely requiring employment at the time payment would be made — not as disentitling employees during the common law notice period. The distinction between "active employment" and "not terminated" matters, and courts have parsed these provisions with exacting precision.

For employees, this means that your bonus entitlement may survive your termination. For employers, it means that bonus plans must be drafted with explicit, unambiguous language if they intend to exclude terminated employees.

The Consideration Problem

For an employment contract to be enforceable, there must be consideration — something of value exchanged by both parties. When a new employee signs an agreement before starting work, the consideration is the job itself. But what about agreements signed after the employee has already started?

In Hobbs v. TDI International Bridges, Inc., 2009 BCCA 577, the British Columbia Court of Appeal examined whether a restrictive covenant in an agreement signed after the commencement of employment was enforceable. The court held that for a post-employment-commencement agreement to be enforceable, there must be fresh consideration — something beyond continued employment, such as a promotion, a raise, or additional benefits.

This principle has significant practical implications. An employer who asks an existing employee to sign a new agreement with a restrictive covenant or amended termination clause must provide something new in return. Simply continuing to employ the person is not enough. Without fresh consideration, the new agreement is unenforceable.

Choice of Law and Forum Selection

In an increasingly remote and multi-jurisdictional workforce, choice of law clauses — provisions specifying which province's or country's laws govern the agreement — have become more important. An Ontario employee working remotely for a company headquartered in British Columbia might sign an agreement that specifies BC law applies.

Whether such clauses are enforceable depends on the circumstances. Courts generally respect choice of law provisions when there is a genuine connection between the chosen jurisdiction and the employment relationship. But they may refuse to enforce a choice of law clause that would deprive the employee of protections they would otherwise have under the laws of their home jurisdiction — particularly where employment standards legislation is at stake.

What to Do When You Receive an Employment Agreement

If you are starting a new job and receive an employment agreement, here is what matters most:

1. Read the termination clause. Understand what you would receive if you were fired tomorrow. If the clause limits you to ESA minimums, know that you are giving up potentially months of common law notice.

2. Check the restrictive covenants. Are there non-compete, non-solicitation, or confidentiality provisions? Understand what they prohibit and for how long.

3. Review the bonus provisions. If part of your compensation is discretionary or incentive-based, understand the conditions for payment and what happens upon termination.

4. Ask for changes. Employees rarely negotiate employment agreements, and that is a mistake. The worst the employer can say is no. And many employers will agree to reasonable modifications — particularly to termination provisions — when asked.

5. Get legal advice. A 30-minute consultation with an employment lawyer to review the key clauses is money well spent. The cost is trivial compared to the potential financial impact of a defective or one-sided agreement.

The Bottom Line

Your employment agreement is not a formality. It is a binding legal document that defines the financial consequences of your termination. Every clause serves a purpose — usually the employer's purpose. Understanding what you are signing is not paranoid. It is prudent. And in many cases, it is the difference between a fair outcome and a deeply unfair one.