Many small and mid-sized employers operate without written employment contracts, relying on a verbal offer, an offer letter, or nothing formal at all. It’s an understandable shortcut — and one of the more expensive mistakes an employer can make.

What happens without a contract

Without an enforceable, written agreement, an employee’s entitlements on termination default to the common law. As we’ve covered on the employee side of this blog, common law “reasonable notice” is typically calculated in months per year of service — often far more than the Employment Standards Act minimums many employers assume apply.

For a longer-tenured or senior employee, that gap can mean tens of thousands of dollars in unplanned severance exposure, simply because there was nothing in writing limiting the employer’s obligation.

A contract is a liability tool, not paperwork

A properly drafted employment contract does more than formalize a hiring decision. Done well, it can:

  • Cap termination liability to the ESA minimums, if drafted and worded correctly
  • Clarify expectations around role, compensation, and reporting from day one
  • Protect confidential information and, where appropriate, limit competition after departure
  • Reduce ambiguity that otherwise turns into disputes later

The catch: termination clauses are heavily scrutinized by courts, and a poorly worded clause is often found unenforceable — which puts you right back to full common law exposure, contract or not.

Common mistakes we see

  • Using a generic template pulled from the internet, not reviewed for Ontario law
  • A termination clause that conflicts with, or falls below, ESA minimums (which voids it entirely)
  • No update after a promotion or significant change in role — an outdated contract may no longer reflect the actual relationship
  • Assuming an offer letter alone is equivalent to an enforceable employment agreement

Getting it right the first time

The cost of a properly drafted contract is a fraction of the cost of defending — or losing — a wrongful dismissal claim later. If you’re hiring without a reviewed employment agreement in place, or haven’t looked at your existing templates in a few years, it’s worth a conversation before your next hire, not after your next termination.