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Canadian employment agreement: termination clauses that hold up

The most consequential clause in a Canadian employment agreement is the termination clause. Without an enforceable one, an employee dismissed without cause is entitled to common-law reasonable notice — which can run to many months and, for long-service senior employees, well beyond a year.

Courts read these clauses strictly: if any part of the termination language could breach employment standards, the whole clause is usually struck and common law applies.

Termination language

The clause must at minimum guarantee everything employment standards require: notice or pay in lieu, continued benefits during the notice period, and severance pay where the province provides it.

Ontario courts have repeatedly struck termination clauses because the just-cause provision permitted dismissal without pay in circumstances where the Employment Standards Act would still require it. A defective just-cause clause can void the without-cause clause as well.

Because the standard shifts with case law, termination language is the part of the agreement most worth having reviewed rather than copied.

  1. 1.Identify the governing province and its employment standards floor.
  2. 2.Set out position, duties, start date, compensation and benefits.
  3. 3.Draft the termination clause to meet or exceed the statutory minimum in every scenario.
  4. 4.Include probation only as permitted, with statutory notice preserved.
  5. 5.Keep restrictive covenants narrow — non-competes are prohibited for most Ontario employees.
  6. 6.Have the employee sign before starting work, with time to review.

Probation and consideration

Probation is a contractual concept, not a statutory one. Employment standards still require notice once the employee passes the statutory threshold — three months in Ontario — so a probation clause cannot leave someone with nothing after that point.

The agreement must be signed before employment starts. Presenting it after the first day means it lacks fresh consideration, and courts routinely refuse to enforce terms added later without something new in return.

Restrictive covenants

Ontario prohibits non-compete agreements for most employees, with narrow exceptions for executives and for the sale of a business. Elsewhere, non-competes are enforceable only where reasonable in scope, duration and geography, and only where a non-solicitation clause would not have sufficed.

Non-solicitation and confidentiality clauses remain the reliable tools. Draft them to protect specific relationships and information rather than to fence off an industry.

Key takeaways

  • ✓ A defective termination clause hands the employee common-law reasonable notice.
  • ✓ Employment standards are a floor the contract can never fall below, in any scenario.
  • ✓ Probation does not displace statutory notice once the threshold passes.
  • ✓ Sign before the first day, or the agreement may lack consideration.
  • ✓ Ontario bans non-competes for most employees; non-solicitation still works.

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