An employment contract is a legal document that defines the rights and responsibilities between an employer and an employee in Canada.
Understanding employment contracts is important for both employees and employers to protect their interests and minimize disputes later on.
Today, our guide will examine the key components of Canadian employment contracts and help you find out answer for common questions about negotiating, changing, and terminating these agreements.
What Are Employment Contracts in Canada?
An employment contract outlines the working relationship between an employee and an employer in Canada.
This document lays out key details like job duties, compensation, policies, termination terms, and the rights of both parties. It establishes a formal employment relationship and helps resolve disputes.
Contracts must follow labour laws but can add terms beyond legal minimums. Clear, detailed contracts prevent misunderstandings.
How Many Types of Employment Contracts in Canada?
There are 5 common types of employment contracts used by Canadian companies:
Indefinite Term
The indefinite-term contract is the most common type of employment agreement. As the name suggests, it has no defined end date, and the employment is ongoing until either the employee or employer terminates the relationship.
Employees with indefinite-term contracts are usually permanent employees entitled to reasonable notice or severance pay if dismissed without cause.
Fixed Term
A fixed term contract specifies the duration of employment, such as 6 months, 1 year, or completion of a particular project. It terminates automatically at the end of the set term without the need for notice or severance.
However, if the employer wants to terminate early, they may be required to pay the remainder of the contract. Fixed term contracts are commonly used for temporary, project-based, or contract jobs.
Casual/Part-Time
Casual employment contracts or part-time employment contracts do not guarantee minimum hours. The employee works on an as-needed basis and can be called in to cover absent employees or workload fluctuations. Their compensation and benefits may be reduced compared to those of full-time staff.
Independent Contractor
Independent contractors are self-employed rather than employees, so their agreements are not technically employment contracts.
Unlike official employees, independent contractors do not receive benefits or legal protections afforded to employees. So in these agreements, there are information like the contractor’s services, pay rate, project timeline, and other terms.
Comparison of Key Contract Types
The table below summarizes some of the key differences between the main contract types:
| Contract Type | Duration | Notice Required if Terminated Early | Severance Pay Eligibility | Benefits Eligibility | Most Common Uses |
| Indefinite Term | No end date, ongoing until terminated | Yes | Yes | Yes | Permanent employees |
| Fixed Term | Set end date (6 months, 1 year, etc.) | No, but may pay out the remainder of the term | No | Possibly reduced | Temporary projects, contractors |
| Casual/Part-Time | No minimum hours guaranteed | Yes | Possibly reduced | Possibly reduced | Fill-in staff, workload fluctuations |
| Independent Contractor | Project-based | No | No | No | Consultants, freelancers |
Key Components of an Employment Contract
An employment contract sets clear rules for a job, making sure both the employer and employee know what to expect.
Compensation
The employment contract will specify the employee’s pay structure, including:
- Salary amount and payment frequency (hourly, weekly, bi-weekly, etc.)
- Eligibility for overtime or shift premiums
- Bonus or commission structure
- Benefits coverage and cost-sharing details
Job Description
This section outlines the employee’s core responsibilities and performance expectations. Details may include:
- Job title and department
- Roles and responsibilities
- Reporting structure
- Goals, metrics, or quotas
- Work location and schedule
- Training and development expectations
Policies
The contract should reference any workplace policies the employee must follow, such as:
- Code of conduct
- Confidentiality and intellectual property policies
- Internet and technology use policies
- Dress code
- Health and safety rules
Termination Clause
The termination clause explains how much notice or severance pay the employees will get if they are terminated without cause. This usually depends on how long they’ve worked and their salary.
That said, employee should review this clause carefully as it affects directly their rights when job ends.
Non-Competition and Non-Solicitation Clauses
These restrictive covenants aim to limit an employee’s ability to work for competitors or solicit clients after leaving the company. However, to be legal, they must be reasonable in scope and time.
Why Employment Contracts Matter?
Employment contracts offer important protections and clarity for both employers and employees.
For employers, they:
- Define the employment relationship
- Outline workplace rights and policies
- Protect confidential information
- Limit liability for termination
For employees, they:
- Spell out compensation and benefits
- Provide job security
- Outline workplace expectations
- Specify termination notice/pay
As a result, having a written contract helps avoid misunderstandings by clearly outlining the terms of a job at the beginning.
When disputes arise, both employees and employers can use it as proof to resolve issues, which is much easier compared to a verbal agreement.
Negotiating Your Employment Contract
Before signing any employment contract, it’s important for employees to thoroughly review it and negotiate any unsatisfactory clauses to avoid issues or disputes later. Here are some tips that employee should look at:
- Research your rights under provincial employment standards legislation for minimum notice, severance, leave, etc.
- Carefully review the entire contract and have a lawyer examine it if needed
- Clarify any vague or confusing language
- Negotiate the termination clause and restrictive covenants
- Ask for clauses allowing you to retain intellectual property rights
- Reject unilateral change policies that reduce your rights
- Get any promises (like severance pay) in writing
- Know your bargaining power and walk away if needed
Ending the Employment Contract
The way an employment contract can be terminated depends on the situation:
Without Cause Termination
If an employer terminates without cause, they must provide written notice or payment in lieu based on the contract’s termination clause and applicable legislation. Factors like length of service and salary determine the amount of notice or severance owed.
With Cause Termination
If an employer has just cause, such as employee misconduct or performance issues, they can terminate immediately without notice or severance pay. However, the employer must have documentation to prove the termination with cause.
Employee Resignation
If an employee resigns voluntarily, they must provide written notice to the employer based on the minimum legislated notice period (often 2-4 weeks). Some contracts require longer notice from employees.
Sale or Transfer of Business
If a business is sold or transferred to a new owner, employment contracts typically transfer over to the new employer. All accrued entitlements stay intact.
Expiration of Fixed Term
As outlined above, fixed-term contracts end automatically on the termination date without required notice or severance.
Key Takeaways on Canadian Employment Contracts
- Employment contracts define the working relationship and minimize misunderstandings between employers and employees.
- There are several common types, including indefinite, fixed-term, casual, and independent contractor agreements.
- Key components cover compensation, job duties, workplace policies, restrictive covenants, and termination clauses.
- Written contracts provide more legal protections and clarity compared to purely verbal agreements.
- Employees should carefully review contracts and negotiate unreasonable clauses before signing.
- Termination procedures depend on whether the termination is with cause or without cause, resignation, or the end of a fixed term.
- Understanding employment contracts is crucial for both employers and employees to protect their interests and avoid disputes.
Common Employment Contract FAQs
Do I need a written contract to start work?
No, a written contract is not mandatory, but it provides more clarity and legal protections for both parties. The terms can also be agreed to verbally or implied based on company policies and precedents.
Can my employer change my contract?
Usually no, unless you mutually agree. Some contracts have clauses allowing the employer to change terms, but there are risks of constructive dismissal claims if the changes substantially impact the employee's role negatively.
What happens if a contract is breached?
If the employer breaches the contract, the employee may be entitled to damages through a civil lawsuit. If the employee breaches, the employer may seek an injunction or sue for damages as well.
Are verbal employment contracts enforceable?
Verbal contracts are legal but more difficult to prove and enforce. It becomes a matter of he-said/she-said without written documentation. Some provisions like non-competition clauses specifically require written contracts.