Why Asking for an Employment Contract Might Be the Worst Financial Mistake You Can Make - Employment Contract Lawyer Explains

Do I Need an Employment Contract? Employment Contract Lawyer explains what Employees and Employers Need to Know

Many employees feel uneasy starting a new job without a written employment contract. It feels informal. It feels risky. Some employees even insist on one before accepting an offer, believing it protects them.

In reality, for employees, an employment contract often does the opposite.

From an employment lawyer’s perspective, one of the most common misconceptions we see is the belief that employment contracts exist to protect employees. In most cases, they are designed to protect employers.

This article explains when employment contracts hurt employees, when they help employers, and when limited written terms still make sense.

Employment Contracts and Common Law Severance

In Ontario, employees who do not have a written employment contract are entitled to common law reasonable notice if they are terminated without cause.

Common law severance is determined by the courts and considers factors such as age, length of service, position, and compensation. It is often significantly higher than the minimums under the Employment Standards Act, 2000.

An employment contract almost always exists for one primary reason: to limit that common law entitlement.

Most employment contracts attempt to restrict severance to ESA minimums or to an amount well below what a court would otherwise award. Even when termination clauses are later found to be unenforceable, the risk and uncertainty are introduced solely because a contract exists.

Why Employees Often Should Avoid Employment Contracts

From an employee-focused employment law perspective, we generally recommend avoiding employment contracts whenever possible.

Key reasons include:

·       Employment contracts are drafted by employers and their lawyers, not for employee benefit

·       Their most impactful clauses typically deal with termination and severance limits

·       They often include restrictive covenants such as non-competition and non-solicitation clauses

·       They may (attempt to) reduce or eliminate bonus, commission, or benefit entitlements on termination

In many cases, an employee without a contract is in a stronger legal position than one who has signed a carefully drafted agreement.

Ironically, requesting an employment contract can be one of the fastest ways for an employee to unknowingly sign away significant rights.

When Employers Absolutely Should Have Employment Contracts

From the employer side, the advice is the opposite.

Employers should almost always have written, enforceable employment contracts in place.

Properly drafted contracts can:

·       Limit severance exposure

·       Define termination entitlements clearly

·       Restrict post-employment competition and solicitation

·       Clarify bonus, commission, and incentive treatment

·       Reduce litigation risk and uncertainty

·       Avoid claims for constructive dismissal where they might otherwise exist

For employers, failing to use employment contracts can result in large and unexpected severance liabilities when an employee is terminated.

This is why employment lawyers often find themselves giving very different advice depending on whether they are speaking to an employee or an employer.

Important Exceptions for Employees

There are situations where employees should insist that certain terms are documented in writing.

This does not necessarily mean signing a full employment contract.

Examples include:

·       Stock options or equity grants

·       Unusual bonus or commission structures

·       Additional vacation days beyond company policy

·       Guaranteed raises or promotions

·       Special work-from-home arrangements

·       Unique benefits not provided to other employees

If these items are important to you, they should be confirmed in writing to ensure enforceability.

Crucially, this documentation can often be done by email or offer letter without signing a comprehensive employment contract that limits severance rights.

The goal is to document entitlements without agreeing to clauses that reduce your legal protections.

Employment Contracts Are Not One-Size-Fits-All

The biggest mistake employees make is assuming that formality equals protection.

In employment law, silence can be powerful. The absence of a written contract often preserves common law rights.

Before requesting, signing, or negotiating any employment contract, it is critical to understand whose interests it truly serves.

If you are an employee, you should always have a contract reviewed by an employment lawyer before signing. If you are an employer, you should ensure your contracts are carefully drafted and regularly updated to remain enforceable.

Employment Law Advice for Employees and Employers

Employment contracts, severance packages, and termination rights are highly technical areas of law. Small wording differences can mean tens or hundreds of thousands of dollars.

Whether you are an employee questioning a contract or severance offer, or an employer looking to reduce risk through enforceable agreements, speaking with an experienced employment lawyer before taking action is essential.

Employment Contract