- The termination clause is the single most consequential term in most employment contracts.
- A contract presented after employment has started may be unenforceable for want of fresh consideration.
- Non-competition clauses are now prohibited for most Ontario employees, with limited exceptions.
- Bonus and commission plan wording determines what is owed on termination, and it is routinely overlooked.
The termination clause
Everything else in the contract governs the relationship while it works. The termination clause governs what happens when it ends, which is when the money is at stake.
A valid clause limiting an employee to statutory minimums can reduce an entitlement from many months to a few weeks. An invalid one leaves the employee with full common law reasonable notice.
Because so much turns on it, these clauses are heavily litigated and many have been struck down. Common defects include language that could permit less than the statutory minimum in some scenario, failure to continue benefits through the statutory notice period, and just-cause wording elsewhere in the contract that has been held to invalidate the termination provisions as a whole.
A clause that looks fine to a non-lawyer may not survive analysis, in either direction.
Timing and consideration
This is the point most often missed. A contract signed before employment begins is generally supported by consideration, the job itself.
A contract, or a new restrictive term, presented after the employee has started needs fresh consideration to be binding. Continued employment alone is generally not enough.
The practical consequence: an employee handed a new agreement on their first day, after accepting the offer, may not be bound by its more onerous terms. An employer that wants a new agreement mid-employment has to give something real for it.
Restrictive covenants
Ontario now prohibits non-competition agreements for most employees, with limited exceptions including certain executive roles and the sale of a business. A prohibited non-compete is void.
Non-solicitation clauses remain available, and are the more common tool in any event. They restrict soliciting clients or employees rather than working in the industry, and are enforceable where reasonable in scope, duration and geography.
Confidentiality obligations are separate and generally enforceable, and they continue after employment ends.
For employees, the presence of a non-compete does not necessarily mean it binds. For employers, relying on one may mean relying on nothing.
Bonus and commission
Whether a bonus is owed for a period during which the employee was dismissed depends principally on the plan wording, and on whether the bonus formed an integral part of compensation.
Clauses requiring “active employment” on the payout date are common and are frequently the subject of dispute, particularly where the employee would have been actively employed but for the dismissal.
For commissioned employees, the questions are when a commission is earned, what happens to sales in the pipeline at termination, and whether any clawback applies. These should be clear in the plan and often are not.
The rest of it
Other terms worth reading carefully: the description of duties and any clause permitting unilateral change to them; the location of work and any relocation right; probationary provisions and what they actually permit; and intellectual property assignment, particularly for technical and creative roles.
A clause permitting the employer to change duties, location or compensation at its discretion is significant, because it can undermine a later constructive dismissal argument.
Before signing
An offer is negotiable more often than candidates assume, and the period before acceptance is the point of maximum leverage.
Reviewing the termination clause before signing costs a fraction of litigating it afterwards. That is the whole argument for getting advice at the start.
Common questions
Can I negotiate the termination clause?
Yes, and it is one of the more valuable things to negotiate. Employers often focus on salary and title and are more flexible here than expected.
Is a verbal employment agreement binding?
It can be, but the terms are then whatever can be proved, and the common law implies reasonable notice where nothing displaces it.
Does a probationary period mean I can be fired for any reason?
It gives the employer more latitude, but statutory minimums and human rights protections still apply, and the clause must be drafted properly.
What if I signed a non-compete that is now prohibited?
A prohibited non-compete is void, though other obligations in the same contract, such as non-solicitation and confidentiality, may still stand.
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