Employment Contract Mistakes Ontario Founders Make

Hiring your first employee in Ontario is exciting. But one bad employment contract can cost you tens of thousands in wrongful dismissal claims, unpaid overtime, or CRA audits. Most Ontario founders make the same mistakes—and they're all avoidable.

Ontario's Employment Standards Act (ESA) is strict, and courts consistently side with employees when contracts are poorly written. Here are the 7 most expensive mistakes Ontario startups make, and how to fix them.

1. Using "At-Will" Employment Language

Many founders copy American templates that say "employment at-will" or "terminable at any time without cause." This doesn't exist in Ontario. Even if you write it in your contract, Ontario law requires you to provide notice or pay in lieu of notice when terminating without cause.

The fix: Use Ontario-specific termination clauses that reference the ESA minimums and clearly state notice periods. Better yet, include a termination clause that limits your liability to ESA minimums (not common law, which can be 12-24 months for senior employees).

2. Forgetting to Include a Probation Period

Ontario allows a 90-day probation period where you can terminate without notice or severance. But it's not automatic—you must explicitly include it in the employment contract signed before the employee starts work.

The fix: Add a clear probation clause: "The first 90 days of employment shall be a probationary period. During this time, either party may terminate employment without notice or pay in lieu of notice."

3. Misclassifying Employees as Contractors

Calling someone a "contractor" doesn't make them one. The CRA uses a 6-factor test to determine if someone is actually an employee. If you get it wrong, you're on the hook for back taxes, CPP, EI, and penalties.

The fix: If you control how, when, and where someone works, they're probably an employee. Use a proper employment contract with benefits, deductions, and T4s. Save contractor agreements for true freelancers who work with multiple clients.

4. Skipping IP Assignment Clauses

In Ontario, employees don't automatically assign their IP to you. If your developer builds your product but your contract doesn't explicitly assign IP, they could argue they own it—or at least have rights to it.

The fix: Include a clear IP assignment clause: "All work product, inventions, and intellectual property created during employment shall be the sole property of the Company." Make sure it's signed before they start work.

5. Ignoring Overtime Rules

Ontario requires overtime pay (1.5x) after 44 hours per week, unless the employee is exempt (managers, IT professionals, some salespeople). Many startups assume "salaried = no overtime." Wrong.

The fix: Check if your employee qualifies for an ESA exemption. If not, track hours and pay overtime. Or structure compensation as "salary + overtime" to avoid surprises.

6. Using Unenforceable Non-Competes

Ontario courts hate non-competes and rarely enforce them unless they're extremely narrow. A blanket "you can't work in tech for 2 years" clause will get tossed out.

The fix: Use non-solicitation clauses instead (preventing employees from poaching clients or staff). If you must use a non-compete, make it specific: limited geography, limited time (6-12 months), and limited scope.

7. Forgetting Termination Clauses

If your contract doesn't specify termination terms, Ontario common law applies—which can mean 12-24 months of notice for senior employees. That's a $100k+ mistake for a $120k/year employee.

The fix: Include a termination clause that limits your liability to ESA minimums (1 week per year of service, up to 8 weeks). This alone can save you tens of thousands.

How to Fix Your Existing Contracts

If you've already hired employees with bad contracts, you can't just swap them out. Changing employment terms requires fresh consideration (a raise, bonus, or promotion). Otherwise, the old contract still applies.

Your options: Offer a small raise in exchange for signing a new contract, or wait until their next promotion/raise to introduce updated terms. Don't just hand them a new contract and hope they sign it—courts will side with the employee.

The Bottom Line

Employment contracts in Ontario are not optional, and generic templates from Google won't cut it. Invest in a proper Ontario-specific employment contract that includes probation periods, IP assignment, termination clauses, and ESA compliance. It's the cheapest insurance policy you'll ever buy.

Need an Ontario employment contract? ZeroLawyer's templates are written by Canadian lawyers, updated quarterly, and province-specific. No subscriptions, no auto-renew—just pay once and own forever.