Employment Update: What Employers Need To Know About Recent Legal Developments Relating To Employment Contracts – Contract of Employment

Employment Update: What Employers Need To Know About Recent Legal Developments Relating To Employment Contracts – Contract of Employment

Following recent court decisions and legislative changes around
non-compete agreements in Ontario, employers should be reviewing
and updating their employment contracts. Especially ripe for review
are termination, restrictive covenant and arbitration clauses.
Ontario Courts have recently provided valuable guidance to ensure
that such clauses are enforceable and fulfill their intended
purpose. The following decisions serve as an important reminder to
employers to draft clauses in an employment contract very


In Henderson v. Slavkin et al., 2022
ONSC 2964, a receptionist at an oral surgery clinic was terminated
with six-months’ working notice because the owners of the
business were retiring. The case centered around “for
cause” termination language that was found within the
employment contract but outside the formal
clause. First the “Conflict of Interest” provision
provided that the employee would be terminated for cause
“without notice or compensation in lieu of notice” if
they engaged in any of the enumerated conflicts of interest without
reporting them to the employer. The Court held that the provision
was overly broad, unspecific, and ambiguous. It was unclear in what
circumstances an employee would be engaged in a conflict of
interest that violated the provision.

Second, the “Confidentiality” provision prohibited the
use and disclosure of confidential information. The employee could
also be terminated for cause “without notice or compensation
in lieu of notice” if this provision was violated. Again, the
Court was of the view that the provision could be triggered in
situations where the disclosure of confidential was not willful or
where the breach was trivial.

Both provisions were also to be unenforceable. The statutory
threshold for just cause termination “without notice or
compensation in lieu of notice” under the Ontario
Employment Standards Act, 2000 (the
ESA“) is “wilful misconduct, disobedience
or wilful neglect of duty that is not trivial.” This threshold
cannot be lowered or contracted out of. The Court held that,
because the provisions did not differentiate between wilful vs.
accidental, or trivial vs. non-trivial use and disclosure, they
were an attempt to lower the statutory threshold.

The following are key takeaways that Ontario employers should
consider in light of this case:

  1. This case serves as a reminder that the Court can and will
    scrutinize the entire employment contract (or even the employee
    handbook) for language that affects an employee’s entitlements
    on termination. All such language needs to be compliant with the
    ESA enforceable in order to rely on it. It is not enough
    that a single provision applicable to the facts is

  2. It is vital to have a clear and detailed termination clause.
    Prior to forming the employment relationship, it needs to be
    abundantly clear to employees in which exact situations they may be

  3. The statutory just cause threshold in Ontario is expressly
    defined in the ESA. Any attempt to lower this threshold
    will be unenforceable. It would be wise to incorporate the precise
    threshold into your termination clause to ensure compliance.


A restrictive covenant clause in an employment contract is
designed to place restrictions on an employee’s employment and
post-employment activities. The restrictive covenant may limit an
employee’s ability to work in or carry on a business activity
that is competitive with the employer’s business. It may also
limit the employee’s ability to solicit the business of the
employer’s clients, suppliers or other employees. Effective
October 25, 2021, it is illegal to include a non-competition clause
in an Ontario employment contract, absent a few exceptions.
Non-solicitation clauses tend to be less restrictive than
non-competition clauses and may be enforceable, so long as they are
not overly broad and are reasonable in geographic scope and

In M & P Drug Mart Inc. v.
, 2022 ONCA 398, the Ontario Court of
Appeal upheld a decision which found that a non-competition clause
in an employment contract for a pharmacist was overly broad and
therefore unenforceable. The language of the provision failed to
limit its application to (i) the pharmacy aspects of a business
that may include non-pharmacy aspects, such as a supermarket, or
(ii) working as a pharmacist, in contrast to doing work for a
business that was unrelated to the practice of pharmacy or simply
being a passive investor.


The recent decision of the Ontario Superior Court in Tarras v. The Municipal Infrastructure Group
, 2022 ONSC 4522 serves to remind employers of the
risks involved in agreeing to a fixed-term employment relationship.
The employee agreed to a three-year fixed-term contract which
provided a salary of $250,000 per year. The employee was terminated
without cause after 13 months. In doing so, the employer relied on
a termination clause that turned out to be unenforceable. In
keeping with an extensive body of case law, the Court held that the
employee was entitled to damages for wrongful dismissal in the
amount equal to the remainder of the compensation owed for the
3-year fixed term. Therefore, the employee received a hefty award
of $479,166.67, with no requirement to mitigate damages.

Though they are inherently risky, there may be valid reasons to
implement a fixed-term provision in an employment contract. For
example, it can be a bargaining chip used to recruit a desirable
employee. If a fixed term provision is necessary in the
circumstances, employers should be sure to protect themselves. For
starters, both the for cause and the without cause termination
provisions within the fixed-term contract must be compliant with
the applicable employment standards legislation. Otherwise, the
entire termination provision may be unenforceable and invalid. When
done properly, a clear and compliant termination provision can be
utilized to minimize an employee’s entitlements upon


In Irwin v. Protiviti, 2022 ONCA 533,
the plaintiff brought a civil action against the employer for
constructive dismissal. However, the employment contract governing
the relationship contained a clear arbitration clause. In holding
that the action should be stayed in favour of arbitration, the
Court of Appeal noted that there were no access to justice concerns
(as the employee was well-paid and had the benefit of legal advice
prior to signing the employment agreement, and that the challenges
to the enforceability of the arbitration provision should be
determined by an arbitrator and not by the court.

However, it is clear from this decision that the Court of Appeal
did not intend to create a free-standing rule that arbitration
clauses in employment contracts will always be enforceable. In
light of the recent case law on this issue, employers would be well
advised to consult the following tips when drafting an arbitration
clause in their employment contracts:

  1. Ensure that the cost of arbitration at the specified forum is
    not disproportionate to the amount of the foreseeable claims;

  2. Select an arbitration forum that is reasonably accessible to
    the employees who may seek to bring a claim;

  3. Provide each prospective employee with the opportunity to
    obtain legal advice before signing the employment contract;

  4. Be clear as to what types of disputes the arbitration clause
    applies to.


Given these recent changes, employers should pay extra attention
to the termination, restrictive covenant and arbitration clauses in
their employment contracts in order to create more certainty,
minimize potential damages and protect their proprietary

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be ought
about your specific circumstances.