Written Contracts of Employment - Pitfalls and Potholes - Hicks Morley

Written Contracts of Employment – 

Pitfalls and Potholes 

By Kimberly D. Pepper and Erin M. Miller 

Introduction 

In many employment relationships, there is either no written employment 

contract or only a very brief written employment contract addressing a few 

key terms (such as salary). The common law recognizes this reality by 

implying a number of contractual terms which will govern the employment 

relationship unless the parties expressly modify those implied terms in a 

written employment contract. For example, one of the most important 

implied terms addresses the circumstances in which the employment 

relationship may be terminated. In the absence of an express contractual 

term stating otherwise, the common law implies a term into every 

employment contract allowing the employer to terminate an employee for 

cause without notice, or for any reason upon providing reasonable notice 

or pay in lieu thereof. 

There are a number of key advantages to be gained by using written 

employment contracts. These include: 

• A written employment contract permits the parties to the 

employment relationship to replace the contractual terms 

implied by the common law with terms that are more closely 

tailored to their needs and objectives. 

• By using an employment contract, the parties may be able to 

achieve greater certainty than the common law will permit. 

• Greater certainty will, in turn, reduce the risk of litigation in 

the event of an employment dispute. 

© Copyright 2012, Hicks Morley Hamilton Stewart Storie LLP Page 1

To continue the example referred to above, there may be circumstances in 

which the parties will have a mutual interest in modifying the terms implied 

by the common law with respect to termination. The common law implied 

terms involve concepts that are highly elastic. One judge’s view of what 

constitutes “reasonable notice” can be very different from another’s – or, 

for that matter, from what the parties may have contemplated at the outset 

of the relationship. Indeed, the general trend in the case law appears to be 

towards longer notice periods. To customize the terms of the employment 

agreement to their particular relationship, increase certainty, manage 

potential liabilities, and decrease the risk of litigation, the parties may wish 

to negotiate specific provisions at the outset of their relationship which will 

govern in the event the relationship breaks down – such as provisions 

setting out the notice that will be provided if the contract is terminated 

without cause. 

However, the advantages of using written employment contracts can be 

easily lost if certain basic tenets are not followed. The following series of 

questions and answers provides guidance with respect to these tenets. 

1. When should the contract be entered into 

The timing of the presentation and agreement to the terms of a written 

employment contract is a very important consideration when hiring 

employees. Written employment contracts should typically be provided to 

employees well in advance of when an employee is scheduled to start 

working for a new employer or in a new position that warrants a new 

contract. In recognition of the inevitable inequality of bargaining power 

between employers and employees, Canadian courts are inclined to 

question the enforceability of contracts and contractual terms where an 

employee has not had sufficient opportunity to consider the terms of the 

contract which he or she is being asked to sign. 

Employees should be permitted to have, at minimum, a few days to review 

and confirm their understanding of the terms of a new employment 

contract, and to permit them to seek independent legal advice on the 

terms laid out, if they so wish. By taking this approach, employers 

substantially reduce the potential for the employee to later assert that 

unfavourable contractual terms were not fully understood and agreed to, 

and therefore, should not be binding. 

Enforceability may also be compromised if the employment contract is 

ultimately executed following the commencement of employment. In 


Francis v. CIBC the Ontario Court of Appeal held that modification to a 

pre-existing contract will not be enforced unless the employer has 

provided “fresh consideration” to support the amended terms. 

Francis v. Canadian Imperial Bank of Commerce (1994), 7 C.C.E.L. (2d) 1 

(Ont. C.A.). 

In this case, at the time of his hire, Francis received a written offer of 

employment from CIBC that included the quantum of his salary and 

outlined a start date. The letter stated that the offer was contingent only 

upon a positive reference check. Francis, in writing, accepted the offer on 

the terms and conditions outlined. However, when Francis reported for his 

first day of work, he was presented with a number of forms and 

documents, including one identified as an “Employment Agreement.” The 

employment agreement contained a termination provision that limited the 

amount of notice to which he would be entitled in the event of a “without 

cause” termination. 

Although Francis signed the employment agreement, the Court of Appeal 

ultimately held that the agreement was not binding on him. Specifically, 

the Court found that all of the essential terms of Francis’ employment 

contract had been confirmed by CIBC and Francis in the initial offer of 

employment which Francis accepted prior to commencing employment. 

No new or additional consideration had been provided to Francis when he 

was presented with the variation of his original agreement with CIBC in the 

form of the “Employment Agreement”. As a result, the contract, including 

the clause limiting his right to reasonable notice, was found to be 

unenforceable. 

The Francis case is a clear reminder to employers to ensure that all of the 

essential terms of the employment contract are included in the 

employment offer and agreed upon prior to the employee commencing 

employment. Alternatively, if such terms will be presented after 

employment commences, the employer must provide fresh consideration 

such as, for example, a signing bonus, to support the amended terms of 

the agreement. 


2. Can the employer enforce a contractual notice provision which 

limits the employee’s notice/severance entitlement to the minimum 

amounts prescribed by applicable employment standards 

legislation 

An employer can limit an employee’s notice entitlement to the minimum 

statutory notice requirements under applicable employment standards 

legislation which has the effect of displacing an employee’s right under the 

common law to reasonable notice of termination. However, any 

employment contract clause seeking to have this effect must be drafted 

very carefully. As can be seen in Machtinger v. HOJ Industries Ltd., the 

courts are quick to void altogether any employment contract clause which 

violates an employee’s statutory entitlements. 

Machtinger v. HOJ Industries Ltd. (1992), 91 D.L.R. (4th) 491 (S.C.C.). 

Prior to commencing his employment, Machtinger signed a written 

employment contract containing a termination clause stating that his 

employment could be terminated at any time on a without cause basis with 

no notice or pay in lieu thereof. Upon termination, however, the Company 

provided him with his minimum statutory entitlements under the 

Employment Standards Act (the “ESA”). 

The Supreme Court of Canada held that due to the explicit language in the 

ESA which prohibits contracting out of legislative entitlements, and due to 

the fact that Machtinger’s termination provision did not meet the minimum 

ESA requirements, the contractual provision in question was clearly null 

and void. 

In addition to this finding, the Court also clarified that a contractual notice 

provision which fails to comply with minimum standards legislation will be 

null and void for all purposes, and cannot be used as an aid in determining 

the parties’ intent with respect to notice entitlements upon termination: 

In my view, an approach more consistent with the 

objects of the Act is that, if an employment contract fails 

to comply with the minimum statutory notice provisions 

of the Act, then the presumption of reasonable notice will 

not have been rebutted. Employers will have an 

incentive to comply with the Act to avoid the potentially 

longer notice periods required by the common law, and 

in consequence more employees are likely to receive the 

benefit of the minimum notice requirements. Such an 

approach is also more consistent with the legislative 


intention expressed by s. 6 of the [ESA], which expressly 

preserves the civil remedies otherwise available to an 

employee against his or her employer. 

Therefore, where a contractual notice provision that does not meet the 

ESA minimum standards is voided, the Court will not conclude that the 

parties intended to limit the employee’s notice entitlement to the minimum 

statutory requirements; rather, the employee will be entitled to reasonable 

notice of termination in accordance with common law principles. 

3. How can the employer ensure that a notice provision which 

limits the employee’s entitlement to the minimum statutory 

requirements is enforceable 

Provided the termination provision is clear and the employee has been 

given the opportunity to review the contract prior to signing it, a contractual 

provision which restricts the employee’s notice entitlement to statutory 

notice should be enforced irrespective of whether the employee would be 

entitled to greater notice at common law. 

Mesgarlou v. 3XS Enterprises (2002) Unreported O.J. No. 4323 (Ont. 

S.C.). 

In Mesgarlou, the employee executed an employment agreement 

containing a termination provision as follows: 

After the first three (3) months of employment, both 

parties shall give notice in accordance with the Ontario 

Employment Standards Act prior to terminating this 

employment agreement. 

The Plaintiff was terminated and the issue was whether his notice 

entitlement was restricted to his minimum statutory entitlements under the 

ESA. The Court held that the notice provision was, in fact, sufficiently 

clear and unambiguous as to rebut the common law presumption that 

reasonable notice was required in order to terminate Mesgarlou’s 

employment. The Court held: 

Granted, the plaintiff didn’t seem to pay much attention 

to the termination clause in the contract but that was his 

choice. He had lots of opportunity to look into it and to 

seek advice [prior to signing the agreement]. He has 

obviously sought professional advice in relation to his 

income tax affairs and is, from his testimony before me, 

a competent and sophisticated businessman, well used 


to looking our for his interests. Nor can it be said that he 

was in a vulnerable bargaining position in relation to the 

defendant. He showed that by negotiating such 

significant increases in his production bonuses. In my 

view, the plaintiff was simply not particularly concerned 

about termination and period of notice. 

It should be noted that although the Court held that the contractual notice 

provision was enforceable, in our respectful view, the clause in question 

left open the possibility that additional common law notice would be 

payable. The clause did not state that the employee would only be 

entitled to his notice under the ESA; it stated that he would be given 

notice in accordance with the ESA. In our opinion, where an employer 

seeks to limit an employee’s notice entitlement to the statutory 

requirements, it is prudent to ensure that the notice provision expressly 

states that the employee will only receive his/her minimum statutory 

entitlements under applicable employment standards legislation and that 

that such payments are in full satisfaction of any and all notice 

entitlements. 

4. What happens if the notice provision initially accords with 

statutory requirements but might eventually violate the ESA once the 

employee accumulates a certain amount of service 

Not only will a contractual notice provision be voided where, from the 

outset of the contract, the notice provision fails to comply with minimum 

statutory requirements, a provision will also be void if the provision may, at 

some future date, violate the statutory minimums. 

Wright v. The Young and Rubicam Group of Companies (Wunderman) 

2011 ONSC 4720. 

The Plaintiff (Wright), an executive vice president, signed an employment 

contract containing a “without cause” termination provision which 

prescribed the amount of notice that he would be entitled to in the event of 

a “without cause” termination. Wright was terminated with just over five 

years’ service, and was provided with 13 weeks pay in lieu of notice and 

other benefits. This amount complied with the applicable ESA 

requirements. 

However, at trial, Wright argued that the contractual notice provision did 

not comply with the ESA and should be declared void as a result. He 

argued that once he had completed a certain number of years’ service, the 


contractual notice provision would no longer comply with the minimum 

statutory requirements. The Court agreed with Wright’s reasoning on this 

point, and declared the contract to be void as a result even though at the 

date of termination, the contractual notice provision complied with the 

applicable ESA requirements. In the result, the Court held that Wright was 

not limited to the 13 weeks’ notice which was paid to him; rather, he was 

entitled to 12 months common law notice. 

The lesson to be taken from Wright is that contractual notice provisions 

must be carefully drafted to ensure that, as the employee acquires more 

service, the notice prescribed by the contract will always comply with 

minimum statutory requirements. 

5. Is the contractual notice subject to mitigation 

A very recent decision of the Ontario Court of Appeal has held that an 

employment contract which fixes the period of notice upon termination 

without cause, but makes no specific reference to mitigation, does not 

attract the obligation to mitigate that typically attaches to the common law 

notice. 

Bowes v. Goss Power Products Ltd., 2012 ONCA 425. 

In this case, the Plaintiff was dismissed without cause and was provided 

with six months notice pursuant to the fixed notice period set out in his 

employment agreement. Two weeks later, he obtained a position with 

another employer at the same salary. Goss Power took the position that, 

as a result of securing alternate employment, the Plaintiff had mitigated 

his damages and accordingly, paid out only three weeks notice in 

accordance with the minimum statutory notice requirements. 

The application judge dismissed the Plaintiff’s argument that this was a 

breach of the employment contract, and found that the duty to mitigate 

applied even where there was a fixed termination notice period in the 

employment contract. In overturning this decision, the Court of Appeal 

found that the application judge had mischaracterized a fixed notice 

period as analogous to damages in lieu of reasonable notice at common 

law. In doing so, the application judge had wrongly concluded that there 

was a presumption that the Plaintiff had a duty to mitigate, and that the 

agreement’s silence on this point indicated that the presumption had not 

been rebutted, and that mitigation should be applicable to the calculation 

of damages. 


Instead, the Court of Appeal found that where an employment agreement 

contains a stipulated entitlement on termination without cause and is silent 

as to the obligation to mitigate, the employee will not be required to 

mitigate. This conclusion was based on the following: 

• in contracting for a fixed sum, the parties had contracted out 

of the common law concept of reasonable notice or 

damages in lieu thereof; 

• by specifying a set amount, the stipulated amount is 

characterized as either liquidated damages or a contractual 

sum, and mitigation is not a live issue in these 

circumstances; 

• the inherent unfairness in permitting the employer to rely on 

the certainty of fixed damages and then permitting the 

employer to seek a lower sum by raising the issue of 

mitigation not previously mentioned; and 

• the inconsistency and counter-intuitiveness in permitting the 

parties to contract for certainty, while leaving mitigation as a 

live issue with a significant risk for litigation. 

The Court’s reasoning was further confirmed in this case by the presence 

of a broad release in the applicable employment agreement, indicating an 

intention to avoid litigation, confirming a desire for finality and bolstering 

the finding that the parties did not intend for mitigation to be required 

unless expressly set out. 

Significantly, the Court also clarified, from a practical perspective, that 

where parties intend that mitigation is to apply in cases where an 

agreement specifies a fixed amount of notice, they must express this 

intention in clear and specific contractual language. 


6. Restrictive Covenants – Are they enforceable 

Employers often use employment contracts to assist in protecting 

confidential business information and proprietary interests. To this end, 

employers include in the employment agreement or as a stand-alone 

agreement, non-competition, non-solicitation and/or confidentiality 

agreements which place certain restrictions on the employee’s activities 

after the employment relationship ceases. In appropriate circumstances, 

these covenants are enforceable, but great care must be taken in both 

drafting and selecting such clauses. 

In particular, employers must carefully weigh their interests which require 

protection against the restrictions which are sought to be imposed through 

the contractual provision. Proportionality and reasonableness are central 

to the enforceability of these contractual terms, as courts will refuse to 

enforce any overly broad restraint on an individual’s ability to work and 

compete. 

H.L. Staebler Company Limited v. Allan, 2008 ONCA 576. 

In this case, the Ontario Court of Appeal considered the enforceability of 

restrictive covenants where two employees resigned and immediately 

began working in a similar capacity for another employer in the insurance 

industry. Both employees were subject to restrictive covenants on their 

post-employment activities for a two year period following the termination 

of their employment. 

The Court highlighted the framework for determining whether a restrictive 

covenant is reasonable and therefore enforceable: 

The starting point is “an overall assessment of the clause, the 

agreement within which it is found, and all of the surrounding 

circumstances.” Thereafter, three factors must be considered. 

First, did the employer have a proprietary interest entitled to 

protection Second, are the temporal or spatial features of the 

covenant too broad And, third, is the covenant unenforceable as 

being against competition generally, and not limited to proscribing 

solicitation of clients of the former employer 

In concluding that the restrictive covenant in this case was not 

enforceable, the Court not only utilized the above analysis, but also 


emphasized the importance of selecting the appropriate clause in seeking 

to protect an employer’s interests. 

The Court held that an appropriately drafted non-solicitation clause may 

often be sufficient to protect an employer without unduly restraining an 

employee’s ability to work. A non-competition clause, which restrains 

employees from conducting business with former clients and customers, 

was found by the Court to only be enforceable in exceptional 

circumstances. In Staebler, the Court ultimately found that the restrictive 

covenant in question was, in fact, a blanket non-competition clause, and 

thus was unenforceable. 

Mason v. Chem-Trend Limited Partnership, 2011 ONCA 322. 

This case aptly demonstrates the practical application of the framework 

outlined in Staebler. At issue here was a restrictive covenant providing 

that for one year following any termination for any reason, the terminated 

employee would not: 

[…] directly or indirectly, for my own account or as an employee or agent 

of any business entity, engage in any business or activity in competition 

with the Company by providing services or products to, or soliciting 

business from, any business entity which was a customer of the 

Company during the period in which I was an employee of the Company, 

or take any action that will cause the termination of the business 

relationship between the Company and any customer, or solicit for 

employment any person employed by the Company. 

In determining whether the clause was enforceable, the application judge 

accepted that because of the world-wide nature of the respondent’s 

operations and many of its customers, it was reasonable that the covenant 

be broad and geographically world-wide. Second, the Court held that it 

was reasonable to restrict any activity of the appellant which was in 

competition with the respondent because of the appellant’s access to 

significant information about the respondent’s business and his technical 

knowledge of the industry. Finally, the Court found that the one-year 

temporal restriction was relatively short compared to other cases. The 

Court concluded that the more onerous geographic and activity restrictions 

in this covenant were balanced out by the shorter temporal limitation, 

making the clause as a whole a reasonable one. 


The Ontario Court of Appeal ultimately disagreed with this analysis, based 

upon the following findings: 

(a) 

(b) 

(c) 

(d) 

the existence of other protections (i.e. contractual clauses) 

that provided the respondent with significant protection; 

the fact that the prohibition on dealing with businesses which 

may be former customers of the company was not consistent 

with a one year restriction on competition, which would then 

allow the employee to compete freely; 

the nature of the employment, as the appellant was part of 

the technical sales force for a large company, operating in a 

limited sales territory; and 

the fact that the clause was unworkable because in practice 

it was not possible for the appellant to know which potential 

customers he was prohibited from doing business with, given 

that the appellant had no way to know whether any particular 

potential contact was, or had been at some point over his 

extensive employment, a customer of the company’s global 

operations. 

As a result, the Court ultimately allowed the appeal and granted a 

declaration that the restrictive covenant was unreasonable and therefore, 

unenforceable by the respondent. 

The Staebler and Mason cases signal the need to use extreme care in 

deciding whether to insist upon some form of restrictive covenant in an 

employment agreement and, where such a covenant is deemed 

necessary, in drafting the provision to ensure that the clause is not 

overreaching in scope.

Written Contracts of Employment - Pitfalls and Potholes - Hicks Morley

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