Most Important Terms To Include In An Employment Contract

If you are a small business without an employment lawyer on retainer, it can be daunting to know what you need to include in your employment contracts. Of course, you likely know the basic terms to include in your employment contracts like Pay, Start Date, Benefits and Vacation, etc. However, you may be unfamiliar with or confused by the more technical clauses typically included in professional employment contracts, for example, confidentiality, competition and dismissal clauses. 

This blog post will thus help you by discussing and listing several, but not every key clause (some terms are too context-specific) that you should include in your employment contract. 

Why Use An Employment Contract?

First, if you came to this article because you were looking for help making your written employment contract, congratulations! Making a written employment contract is a really good decision. If you don’t use written employment contracts, you could end up owing an ex-employee more than you could have, and you could lose out on other valuable other protections. 

In Ontario, all employment relationships are contractual whether or not a written employment agreement is signed. Any time an employment relationship is commenced, an employer and an employee have a contract. There doesn’t even need to be a verbal agreement to form an employment contract. An employment contract is instantly implied as soon as an employment relationship is formed here in Canada (unless there is a written or verbal contract).

When there is no written or oral employment agreement, and instead there is an implied employment agreement, then terms and conditions of employment will be governed by common law, which can be costlier than employment standards legislation minimums. 

In light of the relatively generous common law rights of employees, most employers in Canada would be wise to require their employees to sign a written employment contract that displaces the common law with a document tailored more specifically to be employer-friendly. 

Things You Should Include In An Employment Contract

The common law implies various rights and obligations onto employees such as the right to notice of termination and the obligation of good faith and fidelity, respectively. However, the common law can be silent or at times overly generous concerning other aspects of a working relationship. To that end, here are some of the most important clauses to include in an employment contract to displace the common law:

1. Termination Clause: A termination clause can limit an employee’s entitlement to termination pay from over 24 months to just eight weeks or anywhere in between. 

2. Non-Solicitation Clause: A non-solicitation clause prohibits employees from soliciting or dealing with customers of the employer for a set period in a specific geographic area. 

3. Confidentiality Clause: A confidentiality clause reinforces and specifies the employee’s duty to keep company secrets a secret. 

4. Privacy Clause: An employer should add a privacy clause in the employment contract that details how the employer collects, uses and discloses personal information. 

5. Probationary Clause: A probationary clause gives the employer the right to terminate the employee without any notice or termination pay in case the employee is dismissed within three months.

6. Lay Off Clause: Without a clause contemplating a temporary layoff, an employer may not be able to temporary lay off an employee without constructively dismissing the employee. This was an important issue during the beginning of covid. 

7. Location. Now more than ever it is important to define where the employee will work, whether it be remote, hybrid or on-site, and to also define all the rules about hybrid or remote work where applicable. The location clause should be sure to also include a term allowing the employer to recall the employee back to a location without triggering a breach of the employment contract. 

8. Resignation: If an employer doesn’t want to be left without enough staff to maintain a productive and happy workforce, it should make sure to state how much notice an employee must give before they resign to ensure they have enough advanced warning to replace the employee. With the #greatresignation following covid, now more than ever it is wise to acknowledge that employees leave for different companies way more than they used to. 

There are countless other terms and conditions an employer may want to include in their employment contracts. Generally, it depends on the kind of employee in terms of how complicated and in-depth an employment contract should be. For example, a cook at a fast-food restaurant will not require the same onerous contract a CFO at a major retailer may require. Keep in mind however that new employees today are more knowledgeable about their rights and there is also a clear shortage of workers, so some candidates may refuse an overly harsh contract if they have multiple offers/options. Try and keep your employment contracts succinct and not overly burdensome to attract the best talent.