By Howard Levitt and Jacqueline King

Here are some key issues to keep in mind when entering into an employment contract

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. It also sets the foundation for the working relationship, outlining the rights, obligations, and expectations of both parties.

So, what should you be considering when reviewing a new employment contract? Before you sign, here are several critical factors to consider to ensure that your interests are protected and your rights respected:

What is your status?

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.

What is your job title, and what are you responsible for?

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.

What are the compensation and benefits?

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:

Health and dental insurance
Retirement savings plans (e.g., RRSP matching)
Paid time off (vacation days, sick leave)
Stock options or equity, if applicable

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.

How about termination and severance?

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.

Does the contract address hours and overtime?

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.

How about confidentiality and intellectual property?

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.

What about vacation time and leaves of absence?

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.

Is there a probationary period?

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 (which Howard acted in) 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.