Authors: Stephanie McDonald and Baldeep Sodhi
Many people sign employment contracts without fully understanding their implications. While the Employment Standards Act (ESA) sets out the minimum protections for workers in Ontario, it’s your employment contract that often defines the actual terms of your relationship with your employer, and some of those terms can have serious financial consequences.
Contracts are typically drafted to protect the employer’s interests. Without careful review, you may unknowingly agree to terms that reduce your pay, change your job duties, or limit your termination entitlements. That’s why it’s so important to understand what you’re signing and to get legal advice when necessary. Although you may not always have the leverage to change every term, knowing what to look for can help you make informed decisions, or at least help you prepare for what lies ahead.
Terms that allow a company to reduce compensation
Most employment contracts include terms about your salary, bonuses, commissions, and sometimes equity, such as stock options, RSUs, PSUs, etc. But what happens if your employer wants to change how much you’re paid? The truth is, while employers can reduce your compensation, they can only do so under specific conditions. It’s critical to review your employment contract carefully and to pay attention to any clauses that may allow your employer to make such changes. These clauses can be enforceable if they are clearly written in the contract, limited in scope, and do not violate the ESA, and are being exercised in good faith.
Contracts can contain vague or overly broad language that giver employers the right to change your compensation. You should watch for phrases such as “Compensation may be reviewed and adjusted by the employer at any time.” This kind of language can be a red flag. If you see this, it’s important to ask for clarification. You should understand how often your compensation might be reviewed, what changes could be made, and whether you’ll receive notice in advance.
Generally, a pay cut of less than 10% may not be considered significant enough to trigger legal action. However, it’s important to ensure your employment contract allows for such a reduction, otherwise, you could end up losing a significant amount of money. Even if your contract gives your employer the discretion to adjust compensation, the employer must exercise that discretion reasonably and in good faith.
The good news is that employers cannot make major changes to your compensation without your consent, but even smaller changes can still cost you thousands. For a change to be enforceable, it must either be permitted under the terms of your employment agreement or supported by proper notice or consideration. That’s why it’s essential to review your employment contract carefully before signing and to ask questions when you don’t fully understand.
Terms that allow a company to change duties, title and location
It’s common for employment contracts to include clauses, such as “subject to reasonable changes.” While this may seem harmless, such language can allow your employer to significantly alter your responsibilities or reporting relationships, sometimes to your detriment. You, as the employee, must always review your employment contract and ensure any changes subject to job responsibilities are within the scope of the employment contract. If your job description is broadly worded or includes language like “duties as assigned from time to time,” it gives your employer more room to modify your role. The consequences can be costly, potentially thousands of dollars. A demotion in title or responsibilities can harm your career trajectory or even limit future promotions.
Similarly, location clauses are increasingly important in today’s work environment. Your contract should clearly define whether your role is remote, hybrid, or on-site, and outline any expectations or limitations associated with that arrangement. Employers will often include terms that allow them to recall you to the office. While this may seem reasonable, a sudden change from remote work to on-site work, especially if it affects your commute, childcare, or work-life balances, can cost you thousands. Always review the terms of your contract carefully and consider how much control you’re comfortable giving your employer.
Terms that limit your termination entitlements (lay-offs & terminations)
In Ontario, your employer cannot temporarily lay you off unless your employment contract explicitly allows it or you’ve agreed to it. A temporary layoff, without such agreement, can be treated as constructive dismissal. Employers may often include contract language such, “The employer may temporarily lay off the employee in accordance with the ESA,” but it’s important to understand that the ESA does not itself give employers the right to lay off. The ESA only governs how layoffs must be carried out if permitted by contract. If your contract does contain a layoff clause, it must be clear, lawful, and consistent with the ESA to be enforceable. That’s why it’s so important to review the language carefully, if the clauses are drafted correctly, your rights may be limited.
Closely related are termination clauses, which outline how your employment can end. Many contracts include language that attempts to limit your termination entitlements to the minimums set out in the ESA. Under the common law, you may be entitled to significantly more, such as one month’s notice or severance per year of service, or even depending on other factors such as your age, job level, and the job market relating to your position. The catch is that a well-drafted termination clause can legally strip you of these rights. If a clause refers only to the ESA and is written correctly, it may prevent you from claiming common law notice. This can cost you thousands. If your contract includes a termination clause and refers only to the ESA to meet legal requirements, you may be stuck with far less compensation than you expected. Always review these provisions carefully and consider negotiating or seeking legal advice before signing any employment contract.
What can you do before signing a contract?
Before putting pen to paper, it’s wise to speak with an employment lawyer. While you may not always be in a position to change the terms, especially if the employer holds more negotiating power, it’s still crucial that you fully understand what you’re agreeing to. Some clauses, such as limiting severance or allowing changes to your job duties, can have long-term consequences. In some cases, there may be room to negotiate key terms, particularly if you bring unique skills or experience to the table. Remember, you can always ask questions, if something is unclear, don’t assume it’s harmless, seek an employment lawyer for clarification or legal advice.
What can you do if you’ve already signed the contract?
You still have options.
- Employers must act in good faith and deal with employees fairly and honestly.
- Even if your contract gives your employer discretion, such as changing your duties or hours, they must exercise that power honestly, fairly, and for reasons set out in the agreement. Courts have made it clear: employers can’t use contractual flexibility to act arbitrarily or in bad faith.
- Monitor changes. Track any changes to your compensation, title, duties, or hours. Make notes about conversations and decisions so you have a clear timeline of what happened and when.
- Push back respectfully. If the changes are unreasonable or negatively affect your role, don’t be afraid to raise concerns. Suggest alternatives that address your employer’s goals while protecting your position.
- Consider your future. If the workplace relationship becomes strained or unfair, it may be time to look for new opportunities, ideally with more clarity and fairness in the contract terms.
At Workplace Sage Legal, we’re here to help. Whether you’re reviewing an offer or dealing with changes after signing, we’ll ensure you understand your rights, protect your interests, and avoid costly surprises.
