An employment contract in Canada is an agreement between an employer and employee that sets the terms of the job, including pay, duties, benefits and what happens when employment ends.
A contract can provide clarity, but it can also limit important rights you would otherwise have. One of the biggest risks is the termination clause: a valid clause can substantially reduce the amount of severance pay a non-unionized employee receives after losing their job.
Don’t assume a contract is harmless because your employer calls it “standard.” Before signing a new offer or replacement agreement, understand what it says about termination, compensation, probation, temporary layoffs, job changes and restrictions on where you can work next.
On This Page:
- 1. What an Employment Contract Is
- 2. What an Employment Contract Should Include
- 3. How a Contract Can Affect Your Rights
- 4. New or Changed Employment Contracts
- 5. Important Clauses to Review
- 6. Provincial & Federal Rules
- 7. What to Do Before Signing
What Is an Employment Contract in Canada?
An employment contract sets the legal terms of the relationship between an employee and employer.
It can deal with your salary, bonus, commissions, benefits, job duties, hours, work location, vacation, probation period, termination rights and obligations after you leave the company.
You can have an employment contract even if you never signed a lengthy formal document. An offer letter, agreed workplace terms and legal rights that apply to the employment relationship can all matter when determining what you and your employer agreed to.
Do you need a written employment contract?
No. You can have an employment relationship without signing a formal written contract.
A written agreement does make the terms easier to identify. It can also give an employer an opportunity to introduce restrictions that would not otherwise apply, which is why employees should understand the document before signing it.
The fact that a clause appears in writing does not automatically make it enforceable. Employment contracts still have to comply with the law.
What Should an Employment Contract Include?
A good employment contract should make the important terms of the job clear enough that both sides understand what was agreed to.
Employees should pay particular attention to:
- Salary or hourly pay: How much you will earn and when compensation is paid.
- Bonuses and commissions: How they are calculated, when they are earned and what happens if your employment ends.
- Benefits: Health, dental, disability, retirement, pension or other benefit entitlements.
- Job title and duties: Your role, responsibilities and the employer’s ability to change them.
- Hours and work location: Your normal schedule, remote-work terms and any ability to relocate you.
- Vacation: Vacation time and vacation pay.
- Probation: Whether a probation period applies and what the agreement says happens during it.
- Termination: The notice or compensation the employer says it will provide if your employment ends.
- Temporary layoffs and job changes: Whether the agreement gives the employer specific powers to change important working terms.
- Post-employment restrictions: Confidentiality, non-solicitation and any non-compete language.
- Fixed term: If the job is for a defined period, when it ends and what happens if the employer terminates it early.
You don’t need to become an employment lawyer to read your contract. Focus first on the clauses that can cost you money or restrict your choices later.
Can an Employment Contract Limit Your Rights?
Yes. An enforceable employment contract can limit rights you would otherwise have, but it can’t lawfully give you less than mandatory employment standards.
This distinction becomes especially important when you lose your job.
Employment standards legislation creates minimum termination rights. In Ontario, Alberta, British Columbia and other common-law provinces, many non-unionized employees can have much greater rights under common law unless an enforceable contract validly limits them.
How can a termination clause affect severance?
A termination clause can be one of the most valuable — or expensive — parts of your employment contract.
Without an enforceable contractual limit, a non-unionized employee in a common-law province can be entitled to reasonable notice based on factors such as age, length of service, position and the availability of comparable employment.
A contract can’t simply erase the minimum rights provided by applicable employment standards legislation. If the termination language is unlawful or otherwise unenforceable, the employee can retain greater rights that the employer attempted to limit.
This is why you should never assume the severance clause in your contract determines what you are actually owed. If you have already been fired, review both the contract and the termination package before signing a release. An inadequate termination package can amount to wrongful dismissal.
Can a contract affect bonuses and commissions after termination?
Yes. Contract language can affect whether bonuses, commissions and other compensation continue during the notice period after termination.
Don’t look only at base salary when reviewing a termination clause. Your regular compensation package can include incentive pay, benefits and other amounts that become financially significant when employment ends.
What If Your Employer Gives You a New Contract?
If you already work for the company, you don’t have to sign a replacement employment contract immediately just because your employer asks you to.
A new contract can be very different from the agreement you accepted when you started. It can reduce termination rights, add restrictions, create a temporary-layoff provision or give the employer broader power to change your duties, location or compensation.
A replacement contract introduced after employment has begun can also raise enforceability issues, particularly when the employee is being asked to give up existing rights without receiving something new of value in return.
Does refusing to sign a new contract mean you quit?
No. Refusing to sign a replacement contract does not by itself mean that you resigned from your job.
Your employer can decide how it wants to respond, and that response can have legal consequences. Don’t resign, stop attending work or sign under pressure because you believe those are your only options.
Can your employer change your employment contract?
Your employer can propose changes, but a major unilateral change to a fundamental term of employment can amount to constructive dismissal.
A substantial pay cut, demotion, major reduction in duties, forced relocation or significant change in hours can cross that line. Whether a particular change is serious enough depends on the contract and the surrounding facts.
Learn more about your rights when an employer changes the deal in our guide to constructive dismissal in Canada.
Important Employment Contract Clauses to Review
The clauses most worth reviewing are the ones that affect your money, job security and freedom after employment ends.
Termination clauses
A termination clause states what the employer says you will receive if it ends your employment. This clause deserves close attention because it can limit severance that would otherwise be available under common law.
Probation clauses
There is no single automatic probation period that applies to every employee across Canada. Your contract should be reviewed to determine whether a probation period was actually agreed to and what it means in your jurisdiction.
Don’t assume that being called “probationary” automatically means you can be fired with nothing.
Fixed-term clauses
A fixed-term contract is intended to last for a defined period rather than indefinitely. The wording dealing with early termination can become extremely important if the employer ends the relationship before the stated expiry date.
Non-compete and non-solicitation clauses
Post-employment restrictions attempt to control what you can do after leaving the company. Non-compete clauses differ significantly by province, and courts scrutinize restrictive employment covenants closely.
For example, Ontario generally prohibits employers from entering into non-compete agreements with employees, subject to limited statutory exceptions. Other provinces apply different rules.
Temporary layoff and change clauses
A contract can try to give an employer authority to temporarily lay you off or change specific employment terms. Those provisions matter if the employer later relies on them to justify a significant change to your job.
Independent contractor language
Calling someone an “independent contractor” in an agreement does not automatically determine their legal status.
The real working relationship matters. Misclassification can affect termination rights, employment standards protections and other entitlements.
Do Employment Contract Rules Differ Across Canada?
Yes. Employment contract rules differ by province and can also depend on whether your workplace is federally regulated.
Employment standards legislation is not identical across the country, and provincial court decisions can affect how particular contract language is interpreted.
For detailed guidance, see:
What if you work for a federally regulated employer?
Federally regulated employees are governed by federal employment standards rather than provincial employment standards legislation.
Banks, airlines, telecommunications companies, railways and certain interprovincial transportation businesses are common examples of federally regulated workplaces.
What Should You Do Before Signing an Employment Contract?
Before signing an employment contract, understand what rights you are receiving, what rights you are giving up and what happens if the job ends.
- Read the termination clause first. Determine whether the agreement limits your severance rights.
- Confirm your complete compensation. Check salary, bonus, commission, equity, benefits and vacation terms.
- Look for employer change powers. Review clauses dealing with duties, location, hours, layoffs and compensation changes.
- Review probation carefully. Don’t assume a label automatically removes termination rights.
- Understand post-employment restrictions. Know what the employer says you can and can’t do after leaving.
- Compare a replacement contract with your existing rights. Identify exactly what is being changed before agreeing.
- Keep a complete signed copy. You may need it years later if your job changes or ends.
Can you negotiate an employment contract?
Yes. You can ask to negotiate an employment contract before you sign it.
Compensation is only one part of the negotiation. Employees can also raise termination rights, bonuses, vacation, remote work, job duties, restrictive covenants and other terms that matter to them.
The best time to identify a harmful clause is before there is a dispute about it.
Employment Contract Canada FAQs
Do I have to sign an employment contract in Canada?
For a new job, an employer can make signing an employment agreement a condition of its offer.
If you already work for the company, a replacement contract is different. You don’t have to sign it immediately simply because it is presented to you. Have the new terms reviewed before giving up rights you already have.
What makes an employment contract unenforceable?
An employment contract or particular clause can be unenforceable when it violates mandatory employment standards or fails other legal requirements for an enforceable agreement.
The answer is clause-specific and jurisdiction-specific. Don’t assume the entire agreement works exactly as written merely because both parties signed it.
Can an employment contract take away severance?
A valid contract can limit greater common-law severance rights, but it can’t lawfully eliminate mandatory minimum termination entitlements.
If you are terminated, have the clause reviewed before accepting the amount your employer says it owes you.
Should a lawyer review an employment contract before I sign?
A legal review is particularly valuable when the contract affects severance, significant compensation, executive responsibilities, a fixed term or restrictions on your future employment.
The cost of understanding a contract before signing it can be small compared with the compensation lost years later because of an enforceable clause.
Get Help With an Employment Contract
An employment contract can affect your rights from your first day of work to your final severance payment. If you have been given a new agreement, a replacement contract or a document you don’t fully understand, get advice before signing.
Samfiru Tumarkin LLP reviews employment agreements, helps non-unionized employees understand harmful clauses and determine how a contract affects their rights when a job changes or ends—and gets full compensation when your rights are impacted.
For contract-specific assistance, learn more about our employment contract lawyers in Toronto, Ontario, employment contract lawyers in Vancouver, or employment contract lawyers in Calgary.