Implied Terms in Employment Contracts: What the Court Reads Between the Lines

The Gap-Filling Function

Employment contracts, like all contracts, operate within a legal framework that supplies terms the parties did not expressly include. These "implied terms" are not invented by courts on a case-by-case basis — they are well-established principles that the law reads into every employment relationship unless the parties have expressly agreed to different terms.

The gap-filling function serves two purposes. First, it ensures that the employment relationship operates fairly even when the written contract is incomplete (as most are). Second, it establishes minimum standards of conduct that both parties must observe, regardless of what the contract says.

Implied terms can be displaced by express terms — but only if the express terms are clear, unambiguous, and, in many cases, compliant with applicable legislation. A termination clause that purports to limit the employee's notice entitlement to the ESA minimums must comply with the ESA in all respects; otherwise, the implied term of reasonable notice applies.

The Implied Term of Reasonable Notice

The most consequential implied term in Canadian employment law is the right to reasonable notice of termination. In the absence of an enforceable contractual provision specifying the notice period, the employer must provide the employee with reasonable notice of termination — or pay damages equivalent to the compensation the employee would have received during the reasonable notice period.

The implied term was established by the Supreme Court of Canada as a fundamental feature of the common law employment relationship. In Machtinger v. HOJ Industries Ltd., [1992] 1 SCR 986, the Supreme Court held that where an employment contract's termination provision is void (for example, because it fails to comply with employment standards legislation), the implied term of reasonable notice applies. The Court emphasized that the presumption in favour of reasonable notice reflects the importance of employment to the individual and the vulnerability of employees relative to employers.

How Reasonable Notice Is Determined

The reasonable notice period is determined by the Bardal factors, established in Bardal v. Globe & Mail Ltd. (1960): the character of the employment (seniority, level of responsibility), the length of service, the age of the employee, and the availability of similar employment having regard to the employee's experience, training, and qualifications.

These factors interact. A 58-year-old executive with 25 years of service and specialized industry expertise may receive 24 months of reasonable notice. A 25-year-old junior employee with 18 months of service may receive 2 to 4 months. The range is wide because the factors are assessed holistically, based on the individual circumstances of each case.

When the Implied Term Applies

The implied term of reasonable notice applies whenever the employment contract does not contain an enforceable termination clause. This occurs in several common situations:

No written contract. Many employees — particularly those in smaller organizations — do not have a written employment contract. For these employees, the implied term of reasonable notice is the default.

Written contract with no termination clause. Some employment contracts address compensation, duties, and benefits but do not include a termination clause. The absence of a termination clause means the implied term applies.

Written contract with an unenforceable termination clause. This is the most significant category. Ontario courts have struck down termination clauses with increasing frequency, particularly since the Ontario Court of Appeal's decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391.

In Waksdale, the Court held that where an employment contract contains a termination clause that violates the ESA in any respect — even a respect that is not relevant to the particular termination at issue — the entire termination provision is void. The rationale is that an employer cannot contract out of the ESA, and a termination provision that attempts to do so cannot be severed or saved.

The Waksdale decision invalidated thousands of termination clauses in Ontario employment contracts. Clauses that limited the employee's notice entitlement to the ESA minimum were struck down because the corresponding "for cause" provision in the same contract attempted to deny the employee their ESA minimum entitlements in a cause termination. The for-cause clause was never invoked — the employee was terminated without cause — but the Court held that the for-cause clause's invalidity infected the entire termination provision.

The Implied Duty of Good Faith

The employer owes an implied duty of good faith and fair dealing in the performance of the employment contract. This duty, while not as expansive as the duty of good faith in some other legal contexts, requires the employer to be honest, not misleading, and not unfairly disruptive in its dealings with the employee.

The Supreme Court of Canada recognized the implied duty of good faith in the manner of dismissal in Wallace v. United Grain Growers Ltd., [1997] 3 SCR 701, and refined it in Honda Canada Inc. v. Keays, 2008 SCC 39. The duty requires the employer, when terminating an employee, to be candid, reasonable, honest, and forthright with the employee, and not to be untruthful, misleading, or unduly insensitive.

The duty extends beyond the termination context. It applies throughout the employment relationship, requiring the employer to be honest in performance evaluations, transparent about the security of the employee's position, and fair in the administration of compensation and benefits.

The practical significance of this implied term is that it provides a basis for moral damages when the employer acts in bad faith — particularly during the termination process. An employer that makes false accusations of cause, delays payment of statutory entitlements, or conducts the termination in a manner designed to humiliate the employee breaches the implied duty of good faith and may be liable for damages beyond the notice period.

The Implied Term of a Safe Workplace

The employer has an implied obligation to provide a reasonably safe workplace. This obligation exists at common law, independent of the statutory obligations imposed by the Occupational Health and Safety Act. The implied term requires the employer to take reasonable steps to protect the employee from foreseeable risks of physical and psychological harm.

The implied term of a safe workplace has gained particular significance in cases involving workplace harassment and bullying. An employer that fails to address a pattern of harassment or bullying — even if the conduct does not meet the threshold for a human rights violation — may be breaching the implied term of a safe workplace, which can support a claim for constructive dismissal.

The Implied Term of Exclusive Service

The employee owes an implied duty of exclusive service — the obligation to devote their working time and effort to the employer's business and not to engage in competing activities during the term of employment. This is the employment law analogue of the fiduciary's duty of loyalty, though it applies to all employees, not just those who owe fiduciary duties.

The implied duty of exclusive service does not prevent an employee from holding a second job, provided the second job does not conflict with the employee's primary employment obligations. An employee who moonlights as a bartender on weekends is not breaching the duty of exclusive service — unless the bartending interferes with their availability or performance during working hours, or unless the employment contract expressly prohibits secondary employment.

The duty does prevent an employee from competing with the employer while employed. An employee who starts a competing business while still employed, diverts the employer's clients, or uses the employer's resources for personal business ventures breaches the implied duty.

The Implied Term of Confidentiality

The employee owes an implied duty of confidentiality — the obligation not to disclose the employer's confidential information, trade secrets, or proprietary data to third parties, either during or after the employment relationship.

The implied duty of confidentiality exists independently of any express confidentiality clause in the employment contract. Its scope is determined by what information is genuinely confidential — information that is not publicly available and that the employer has taken reasonable steps to protect. General knowledge, skills, and expertise that the employee develops during employment are not confidential and cannot be restricted.

The implied duty survives the termination of employment. A former employee who discloses their former employer's trade secrets or uses confidential customer lists to compete may be liable for breach of the implied duty — even if the employment contract did not contain a confidentiality clause.

The Implied Obligation to Provide Work

There is a limited implied obligation on the part of the employer to provide work — not just to pay the employee, but to actually provide them with meaningful work to perform. This implied term is most significant for employees in roles where the performance of work is essential to maintaining skills, reputation, or professional standing.

The leading authority is Collier v. Sunday Referee Publishing Co., [1940] 2 KB 647, in which the English Court held that an employer was obligated to provide work to a journalist whose professional reputation depended on published output. The principle has been applied in Canada, though its scope remains narrower than some other implied terms.

For most employees, the employer's primary obligation is to pay — not to provide work. But for employees whose professional standing, skill maintenance, or earning capacity (through commissions or bonuses tied to work output) depends on the performance of work, the implied obligation to provide work may be enforceable. An employer that pays a commissioned salesperson their salary but removes their clients and gives them nothing to sell may be breaching the implied obligation to provide work — and may be constructively dismissing the employee.

How Implied Terms Interact with Express Terms

The relationship between implied terms and express terms is governed by the principle that express terms prevail over implied terms — but only if the express terms are clear, unambiguous, and lawful.

Express terms that are clear and enforceable displace the corresponding implied term. A termination clause that clearly and unambiguously limits the employee's notice entitlement to a specific period — and that complies with the ESA — displaces the implied term of reasonable notice. The employee's notice entitlement is the contractual period, not the common law reasonable notice period.

Express terms that are ambiguous are interpreted in accordance with the principle of contra proferentem — ambiguity is resolved against the party that drafted the contract (typically the employer). An ambiguous termination clause may be found not to clearly displace the implied term of reasonable notice, in which case the implied term applies.

Express terms that violate the ESA are void. As the Supreme Court held in Machtinger and the Ontario Court of Appeal confirmed in Waksdale, a termination clause that violates the ESA is unenforceable, and the implied term of reasonable notice applies.

Practical Implications

For employees, the existence of implied terms means that your rights are not limited to what your employment contract says. Even a bare-bones contract — or no written contract at all — comes with a package of implied rights that protect your interests.

For employers, implied terms are a source of significant liability. An employer that relies on a termination clause to limit notice obligations but has not ensured that the clause is clearly drafted and ESA-compliant may find that the clause is void and the common law notice period applies — an outcome that can triple or quadruple the cost of termination.

The lesson for both parties is the same: the written employment contract is important, but it is not the whole picture. The law adds terms that the parties may not have discussed, may not have contemplated, and may not even know about. Those terms are real, enforceable, and consequential. Understanding them is not optional — it is the difference between knowing your rights and guessing at them.