Ontario employment agreements are formal legal documents, executed by employers and employees, that govern many of the circumstances that can arise in the workplace. They are becoming increasingly common in Ontario workpaces, and an increasing number of Ontario employers now require the execution of a written employment contract by all new employees at the commencement of employment.
The contents of employment agreements can have very serious consequences for all parties, both foreseen and unforseen. They typically address the following key issues:
Typically, Ontario employment agreements must be signed and formalized prior to the commencement of new employment.
All Ontario employment agreements must comply with the Employment Standards Act, which prohibits any agreement that fails to uphold the minimum statndards set out in the Act.
Employment agreements that are signed after employment has already commenced may be vulnerable to challenge. Such agreements could be found to be unenforceable, unless the employer has provided additional financial benefit to the employee at the time the new employment agreement is presented. This additional benefit, such as a bonus, salary increase or promotion constitutes new “consideration.”
Without such fresh consideration, the agreement could be determined to be legal invalid.
An employment agreement could also lapse into invalidity over time, if important terms of the actual employment have changed, due to a promotion, reassignment or other significant departure from the position referenced in the employment agreement. Most prudent employers will require that a new, updated employment agreeement be completed when such changes occur.
As noted by the Ontario Superior Court in Miller v. A.B.M. Canada Inc., 2015 ONSC 1566, while the parties to an Ontario employment contract are free to express their agreement in the language of their choice, a high degree of clarity is required and any ambiguity in the agreement will be resolved in favour of the employee and against the employer who drafted the termination clause. This in accordance with the principle of contra proferentem.
Employment agreements are frequently contested in Ontario wrongful dismissal and other employment law proceedings. Many such claims turn on the validity of termination clauses and other terms of the contested contract, including restrictive covenants such as non-competition agreements and non-solicitation agreements. These are further discussed below.
Employment agreements are highly technical legal documents. Their validity can turn entirely on the meaning of – or aebven bsence of – a specific word or phrase in the contractual language that must be interpreted. Legal advice should be obtained prior to executing any employment agreement or other employment-related documentation.
A termination clause is a provision in an employment agreement that purports to opt out of the common law presumption that the employee is entitled to reasonable notice of of a termination. Instead, the termination clause of the agreement specifies, and typically limits, the notice and payments an employee will be entitled to receive upon a termination of employment.
Usually, these provisions attempt to reduce the employee’s entitlements to amounts that are less than the employee’s entitlement to reasonable notice at common law.
Termination clauses have been tested in many recent cases in Ontario’s courts. Their validity and enforceability is determined on a case-by-case basis, and depends on the exact wording of each clause.
Below are examples of typical termination clauses:
Termination Clause: Example 1:
[The Company] is entitled to terminate your employment at any time without cause by providing you with 2 weeks’ notice of termination or pay in lieu thereof for each completed or partial year of employment with the Company. If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph…. The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.
Termination Clause: Example 2:
The Employer may terminate the Employee’s employment at any other time, without cause, upon providing the Employee with the minimum amount of advance notice or payment in lieu thereof as required by the applicable employment standards legislation.
Termination clauses are not always enforceable under Ontario employment law. They may be unenforceable if the language utilized is vague or confusing, or if the clause on its face fails to provide at least the minimum entitlements established by the Employment Standards Act. As noted by Ontario’s Court of Appeal in its 2018 ruling in Nemeth v Hatch:
“The well-established presumption is that on termination, an employee is entitled to common law notice; however, this presumption may be rebutted if the contract of employment “clearly specifies some other period of notice, whether expressly or impliedly”, provided that it meets the minimum entitlements prescribed under the ESA: Machtinger v. HOJ Industries Ltd.,  1 S.C.R. 986,  S.C.J. No. 41, at p. 998.
That said, the intention of the parties to displace an employee’s common law notice entitlement must be clearly and unambiguously expressed in the contractual language used by the parties: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, 134 O.R. (3d) 481, at para. 40.”
There is a fair amount of uncertainty as to the legal enforceability of termination clauses in Ontario employment agreements. Several recent Ontario court rulings on the validity of these clauses appear to be contradictory and difficult to reconcile. As a result, it is strongly recommended that legal advice be obtained as to the validity of any termination clause and the likelihood an Ontario court would uphold it.
Ontario employment agreements will often include language that is intended to restrict the actions of employees following the end of their employment. These types of clauses, typically relating to confidentiality, non-solicitation and non-competition, are aptly referred to in the employment law world as restrictive covenants.
Most commonly, employers will seek some assurance that their employees do not solicit business away from the company after their employment ends. In some cases, employers may even be concerned about former employees leaving a company and going on to compete against it in the same market.
The interests of employers in protecting their businesses must of course be balanced against the rights of employees to pursue their trade of preference. Given these competing interests, it is not all that surprising that restrictive covenants are controversial and often subject to challenge before the Courts.
Generally, Ontario’s courts are unlikely to enforce restrictive covenants that are overly broad, limiting or in restraint of trade. Accordingly, non-competition agreements, which often prohibit employees from working in the same industry as the employer after employment ends, are typically frowned upon by Ontario Courts, unless, as examples, the employee involved has been an executive-level fiduciary of the employer or was a previous owner of the company who signed a non-competition agreement in the context of a sale to the current owners.
Non-solicitation agreements are somewhat more likely to survive judicial scrutiny and be upheld, if their ambit is geographically reasonable and the restrictions are not overly broad or unreasonable in duration. In most circumstances, an otherwise reasonable non-solicitation prohibition that expires after six months would be more likely to be upheld than a twenty-four month requirement. Similarly, a non-solicitation provision restricting post-employment contact with only actual, existing clients of the employer with whom an employee directly communicated during employment would be more likely to survive than a broad restriction that purported to exclude all post-employment communications with clients and prospective clients of the company, worldwide, irrespective of whether the employee had any contact with such contacts.
In determining whether such terms should be enforceable, Ontario Courts will not only give weight to the parties’ respective interests, but will also consider the context in which the restrictive covenants were agreed to. While the Court will look to give effect to the parties’ freedom to contract with one another, it will also consider the power dynamics of the parties in negotiations of terms of employment.
The legal test developed by the Supreme Court of Canada in view of these varying interests is as follows:
What this means in plain English is that the restrictive clause cannot be unnecessarily wide-reaching.
In order to assess this, the Court will consider whether the geographic and time restrictions imposed are reasonable, having regard to a number of factors including, the nature of the industry, the type of relationship between the parties and the position of the departing employee including the level of trust and confidence he or she enjoyed.
While it may for instance be reasonable to limit a senior financial adviser from soliciting the clients that he or she worked with while at the company for a six-to-twelve month period, it would in all likelihood be unreasonable to impose an indefinite restriction for a junior level bookkeeper to have contact with any of the company’s clients, past, present and future.
In other words, did the employer really need a non-compete clause to serve its interests or would a non-solicitation clause have sufficed?
As a general principle, Ontario courts are disinclined to uphold non-competition clauses in the employment context, though such a restriction may have some greater enforceability in circumstances involving the sale of business. Where one party sells its business to another, it would make sense to have some limitations in place to bar the seller from opening shop down the street.
The question of whether a restrictive covenant is reasonable, and accordingly enforceable, must be viewed in context of the employment circumstances overall. What is the nature of the industry? How were the terms of employment negotiated and agreed to? Did the employee bring his or her own clients to the company? Did he or she develop clientele from the Company’s contacts, and/or using its resources? Are clients likely to leave with the employee? Is he or she in a position of trust and confidence?
Given the nuances involved, it Is highly recommended that you consult with a Toronto employment lawyer, whether you may be subject to a restrictive covenant or seeking to enforce such a clause.
The general information in this article about Ontario employment law is not applicable to any specific case, and is intended for information purposes only. It is not a substitute for legal advice and may not be relied on as such. Readers are expressly advised to consult with a qualified Toronto Employment Lawyer or Wrongful Dismissal lawyer for advice regarding their specific circumstances and entitlements under Ontario employment law.
© Garry J. Wise and Wise Law Office, Toronto, Ontario, Canada. This information may not be reproduced without consent in writing.