By: Stephanie McDonald and Baljinder (Bal) Singh Tiwana
Joining a startup can be exciting. The right opportunity can accelerate your career and give you meaningful responsibility early on. However, startups are often volatile, and that risk shows up in the employment contract.
Founders are focused on conserving cash and preserving flexibility. As a result, employment agreements often favour the company, not the employee. If you understand the key clauses, you can better assess the offer and spot the red flags early.
Equity with a Long-Term Vesting Schedule
Startups often offer equity, shares or stock options, as part of compensation. This gives you a potential ownership stake. If the company succeeds, that equity may gain real value.
However, equity stakes in startups are almost always subject to a vesting schedule. A typical structure is four-year vesting with a one-year “cliff.” This means:
- You earn nothing if you leave within the first year; and
- After one year, your equity vests gradually over the remaining period.
In practice, your unvested equity depends on both time and company performance. If you leave early, or if the company never achieves a liquidity event, such as a sale (acquisition) or IPO, your equity may never convert into real value. Thus, in many cases, it remains illiquid and effectively worthless.
Termination Clauses
Many startups rely on templated or DIY contracts that lack legal precision. As a result, termination clauses may not be enforceable under Ontario law if they breach the minimum standards under the Employment Standards Act, 2000 (ESA), or are ambiguous.
This is good news for employees.
If a termination clause is unenforceable, the employee is entitled to common law reasonable notice. This is often significantly more generous than your ESA minimum entitlements. Courts assess reasonable notice using factors known as Bardal factors including, age, length of service, position, availability of similar employment. Common law reasonable notice can extend to several months or longer.
Never accept a severance offer before speaking with counsel first.
“Entire Time” and/or Exclusivity Clauses
Startups often include “entire time” or exclusivity clauses. These require you to devote your full working time and attention to the startup. These clauses typically restrict working outside of your startup job, including freelance roles or “side hustles.”
While such clauses are generally enforceable, they must still be reasonable in scope and be aimed at protecting a legitimate interest of the business.
Temporary Layoff Provisions
Some contracts include provisions allowing the employer to place you on a temporary layoff. Under the ESA, a temporary layoff can last:
- Up to 13 weeks in a 20-week period; or
- Up to 35 weeks in a 52-week period if certain conditions are met.
However, at common law, employers do not have an inherent right to lay off employees. Unless your contract explicitly allows for temporary layoffs. Without a layoff clause, placing an employee on layoff may amount to constructive dismissal. Startups often include these clauses to avoid that risk.
Flexibility Clauses (Duties, Title, Reporting Structure)
You may also see clauses that allow your employer to change your duties, title, or reporting structure. These are designed to give startups operational flexibility as the business evolves, and to ensure operational needs are met.
Without such clauses, a significant unilateral change to your role could amount to constructive dismissal. With them, the employer has more room to adjust your position without breaching the contract—provided the changes remain within reasonable limits.
The key is to understand your contract, your role, and the ways it might change, before signing.
Conclusion
Startup opportunities can offer real upside, however in practice the contract often shifts risk onto the employee. Equity may never vest or become liquid (real value). Termination clauses may limit your entitlements. Furthermore, flexibility provisions can significantly redirect your role over time, without your agreement.
The difference between a strong opportunity and a costly mistake often comes down to the fine print.
Workplace Sage Legal advises employees across Ontario in reviewing and negotiating employment contracts before they sign. We can review the fine print, including but not limited to the termination clause, equity structure, and identify provisions that may affect your rights during employment and on exit.
Before you accept a startup offer, understand exactly what you’re agreeing to. Early advice can protect your position and help you make an informed decision.
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Learn more about employment law through the articles below:
- 3 Clauses in your Employment Contract that could Cost you Thousands
- Tech Layoffs in Ontario: Why Your Severance Offer May Be Significantly Undervalued
- Who is entitled to Reasonable Notice, and how is it calculated?
DISCLAIMER: This article/blog is provided for educational/informational purposes only. This blog does not constitute legal advice. Do not rely on any advice before speaking with a lawyer. This blog does not form a solicitor-client relationship.
