Legal information only, not legal advice. Every hiring situation is different; speak to an Ontario lawyer about your own facts.
Short answer: In Ontario, a one-page "offer letter" is usually the employment contract. The clauses that cause the most trouble later are the termination clause, the probation clause, any non-compete, and who owns the work the employee creates. A short review before you send the first offer is far cheaper than fixing a bad template after several people have signed it.
Who this guide is for
- Ontario founders hiring a first or second employee
- Small business owners reusing an offer letter template found online or borrowed from a previous employer
- Anyone deciding whether a new hire should be an employee or an independent contractor
1. Employee or independent contractor?
Calling someone a "contractor" in the agreement does not decide the question. Courts and the Canada Revenue Agency look at the real working relationship, such as who controls the work, who supplies the tools, whether the person can profit or lose, and how integrated they are in your business. Ontario courts also recognise a middle category, the "dependent contractor", who can be entitled to reasonable notice when the relationship ends. If you get the classification wrong, you can face unpaid source deductions, vacation pay and notice claims.
2. The termination clause
This is the clause most often challenged in Ontario courts.
- It must give at least the minimum notice, termination pay and severance pay (where applicable) set by the Employment Standards Act, 2000 (ESA), and must continue benefits during the statutory notice period.
- Ontario appeal decisions have held that if any part of a termination clause (including a "for cause" provision) could breach the ESA, the whole clause may be unenforceable. The employee may then be entitled to "reasonable notice" at common law, which can be months of pay.
- Recent Ontario decisions have also looked closely at wording such as terminating "at any time" or "in the employer's sole discretion".
- If there is no valid termination clause, the common-law notice period applies by default.
3. Probation
The ESA allows an employer to end employment in the first three months without statutory notice. That does not automatically cancel common-law notice. If you want a probationary period to mean something, the offer letter needs to say clearly what happens during and at the end of it.
4. Non-competes and non-solicits
Since October 25, 2021, the ESA has generally prohibited non-compete clauses for employees in Ontario, with narrow exceptions (for example, certain executives and some sale-of-business situations). A non-solicitation clause (no poaching clients or staff) is treated differently, but it still needs to be reasonable in time, geography and scope to be enforced.
5. Intellectual property and confidentiality
If the employee will write code, design materials, produce content or develop processes, the offer letter should deal with ownership of that work and with confidential information. This matters even more for contractors, because paying a contractor does not by itself transfer copyright to you.
6. Written information the ESA requires
Ontario employers must give employees the ESA poster information, and recent amendments to the ESA require certain written information for new employees (such as the employer's name, work location, starting wage, pay period and initial hours) at or before the start of employment. Check the current Ministry of Labour guidance for the rules that apply to your business size.
7. Practical checklist before you send the offer
- Is this person really an employee, or truly an independent contractor?
- Does the termination clause meet or exceed every ESA minimum, including benefits?
- Is the "for cause" wording consistent with the ESA standard?
- Does the probation clause clearly say what notice applies?
- Is there a non-compete that the ESA likely prohibits?
- Are non-solicit and confidentiality terms reasonable?
- Is IP ownership addressed?
- Is the offer signed before the start date (new terms added after someone starts may need fresh consideration)?
Fixed-fee review at Astor Nobel Law
David J. Rose, Barrister & Solicitor, reviews a standard business contract or employment offer letter for a fixed fee of $750 + HST. You receive an issue-spotted redline, a plain-English risk summary and a 20-minute call, turned around within 48 hours of a complete intake, under a written limited-scope retainer.
Start here: https://www.astornobel.com/fixed-fee-incorporation-contract-review Office: 416-519-2543 · david.rose@roselawfirm.ca
Legal information only, not legal advice. Reading this guide does not create a lawyer-client relationship.