Saxony’s State Premier Michael Kretschmer (2nd R) of the Christian Democratic Union (CDU), signs the coalition contract for a minority government in the eastern federal state of Saxony in Dresden, eastern Germany, on December 17, 2024. (Credit: JENS SCHLUETER/AFP via Getty Images)
By Howard Levitt and Jacqueline King
This is the time of year that many employees accept new jobs or employers want to start the New Year fresh by providing their employees new contracts to sign, often accompanied by a raise or bonus. In their excitement, employees often forget to review that contract carefully. The contract governs the relationship between the employer and the employee, with the exception, of course, of relevant legislation relating to human rights and employment standards.
So, what should you be considering when reviewing a new employment contract? The contract sets the foundation for the working relationship, outlining the rights, obligations, and expectations of both parties. Before signing, there are several critical factors to consider to ensure that your interests are protected and your rights respected.
Some key issues to keep in mind when entering into an employment contract include:
A primary consideration is how your employment status is defined within the contract. Employment can generally be classified as either full-time, part-time, temporary, or as an independent contractor. Each status has implications for benefits, job security and other protections. In Canada, misclassification — where an employee is incorrectly labelled as an independent contractor, say — can result in significant legal and financial consequences, including loss of benefits, overtime pay, and entitlement to certain rights such as severance.
Employees enjoy greater protections under the law, including access to benefits and stronger termination rights and protection against onerous working conditions.
Independent contractors, on the other hand, are not entitled to the same benefits or protections under the Canada Labour Code or provincial employment standards acts.
The contract should clearly define your role and responsibilities. While job descriptions can evolve, ambiguity in a contract can lead to misunderstandings about the scope of your work and even cause problems leading to constructive dismissal. Ensure that the duties outlined align with your professional expectations, and if the role includes managerial or professional designations, check whether those are commensurate with your experience and credentials. In some cases, the title may carry certain obligations or imply responsibilities that differ from your expectations.
The contract should clearly specify your salary or hourly wage, as well as any bonuses, commissions, or performance incentives. In addition to base compensation, the contract should detail the benefits package, including but not limited to:
Understanding the full scope of the compensation package is essential, as some benefits — like health insurance or vacation time — can significantly affect your overall satisfaction with the job.
One of the most important considerations when signing an employment contract is understanding the provisions related to termination. Ideally, the contract will be clear on the following:
Notice period: In the event of termination without cause, the contract should specify the notice period, or compensation if notice is not provided by the employer.
Termination for cause: The contract should clearly outline what constitutes just cause for termination, and provide for ESA payments in the event that cause does not reach the ESA standard.
The contract should outline your expected hours of work, including start and end times, break policies, and whether there is any expectation of overtime — depending, of course, on the level of your position. Canada’s employment laws generally stipulate that employees are entitled to overtime pay and time and a half for hours worked beyond 44 hours per week, though this may vary by province.
For salaried employees, it is important to confirm whether overtime will be compensated, since it is required if the person is not genuinely supervisory or managerial.
Many contracts, especially in sectors like technology or research, will include provisions related to confidentiality and intellectual property. These clauses generally require you to keep sensitive information confidential during and after the term of employment. If you are working in a role that involves creative output or innovative work, pay particular attention to how ownership of intellectual property created during your employment is handled. In some cases, employers may claim ownership of any inventions or patents developed during the course of your work.
In Canada, employees are generally entitled to a minimum of two weeks of paid vacation after each year of service — possibly differing between provinces. However, the specific terms of vacation accrual and the method of requesting and taking time off can vary, and you should ensure these details are clearly outlined.
Many employment contracts include a probationary period, typically lasting three to six months, during which either party can terminate the contract with little or no notice. This period may be used by the employer to assess the employee’s fitness for the role. Be sure to understand the implications of the probationary period, including whether the same rights to severance, benefits, or termination protections apply during this time. For employers, there is very specific language required to eliminate severance during probation.
Thoroughly reviewing the terms of the contract with a lawyer will ensure you know your obligations and entitlements. Once the contract is signed, it is generally too late. Litigation is costly. Make sure you understand what the contract says in advance of signing it.
As a caveat for employers, it is essential to point out to the employee or make clear to them any provisions that deprive them of the rights they would otherwise have at law. Otherwise, according to the Matthews decision of the Supreme Court of Canada, that provision may not be enforceable.
As result of the ever-changing caselaw respecting contracts, especially termination provisions, employers should also use the year-end to ensure that their contracts are examined and legally compliant.
Here is one instance where the cost of legal advice will be repaid a thousand fold or more.
Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers with offices in Ontario, Alberta and British Columbia. He practices employment law in eight provinces and is the author of six books, including the Law of Dismissal in Canada. Jacqueline L. King is a partner at Levitt LLP.
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