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You hired Bob three weeks ago. He showed up, started working, you’re paying him. Everything’s fine.
You sent him an offer letter with his salary and start date. He accepted. He’s been doing the work.
You meant to send him a contract. It’s on your to-do list. You’ll get to it.
Fast-forward six months: You let Bob go. No cause, just not a fit. You give him the statutory minimum — one week’s notice.
Bob’s lawyer sends you a letter: No signed contract means common law applies. Bob’s entitled to one month’s severance.
That “I’ll send the contract later” decision just cost you $7,000.
The law doesn’t require a written contract. Employment relationships can be verbal, implied, or established through conduct.
But here’s the problem: If Bob shows up and you pay him, a contract exists whether you signed anything or not.
What kind of contract? Whatever the court decides based on what you said (verbal promises, emails, offer letters), what you did (how you treated Bob, what you paid him, what responsibilities you gave him), and what’s implied by law (common law defaults).
The risk: You think you’re “waiting to finalize things.” The court thinks Bob’s already working under an employment contract — just not the one you would have written.
Real scenario: Employer hires someone, delays sending the contract, employee works for a month, employer finally sends contract with restrictive termination clause. Employee refuses to sign. Contract is unenforceable — no fresh consideration. Employee keeps working under implied contract with full common law rights.
An implied contract is formed through conduct. If Bob shows up, does work, and you pay him, you’ve entered into an employment relationship.
Courts will impose terms even if you never discussed them: reasonable notice on termination (common law, not ESA minimums), good faith obligations, duty to provide safe working conditions, compliance with Employment Standards Act minimums.
What’s NOT in an implied contract: termination clause limiting severance to ESA minimums, IP assignment, confidentiality obligations, non-solicitation, probation period.
The exposure: Without these protective clauses, you default to the most employee-friendly interpretation of the law.
Termination rights: Common law reasonable notice — could be 2 to 24 months depending on Bardal factors (age, length of service, role, availability of similar work). Example: Bob’s 45, worked for you 3 years as a manager, earns $70K. ESA minimum: 3 weeks. Common law: 6 to 9 months.
No probation period: Even if you told Bob “first 3 months are probationary,” without it in writing and signed before he started, it doesn’t necessarily exist.
Full benefits during notice period: If you terminate without cause, Bob’s entitled to continuation of benefits during the notice period.
No restrictive covenants: Bob can walk out your door and work for your competitor the next day, solicit your clients, hire your staff — you have no recourse.
No ability to limit severance to ESA minimums. No IP protection — anything Bob creates might not belong to you. No confidentiality protection beyond what’s implied by law (which is minimal). No clear termination process.
An offer letter is NOT an employment contract.
Offer letters typically cover job title, start date, salary, basic benefits. They DON’T cover termination terms, IP, confidentiality, probation, non-solicitation.
Real case pattern: Employer sends offer letter, employee accepts, employee starts working, employer sends “full contract” two weeks later with restrictive terms.
Court’s view: The offer letter created the contract. The “full contract” is an attempt to modify an existing contract without consideration. It’s unenforceable.
What this means: If your offer letter said “salary $60K” and your contract (sent later) said “salary $60K plus termination limited to ESA minimums,” the termination clause doesn’t stick. Bob gets common law notice.
Many employers think: “First 3 months are probation, I can terminate anytime with no notice.”
The law says: Probation periods must be in writing and signed before employment begins.
ESA minimums: Most provinces don’t require notice for employees with less than 3 months’ service.
Common law: Even within 3 months, if there’s no written probation clause, courts may find you owe reasonable notice (though it will be short).
The trap: You tell Bob verbally “this is a 3-month probation.” You don’t get it in writing. You terminate him after 2.5 months. Bob sues. Court says no written probation clause means common law applies. You owe him notice — likely a few weeks, but more than zero.
Worse trap: You put a 3-month probation in the contract. Bob doesn’t sign until after he starts. The probation clause is unenforceable. If you terminate him at 5 months, you owe ESA minimum notice (likely 1 to 2 weeks) or common law (could be 1 to 2 months).
Common pattern: Hire Bob in a rush. Send offer letter. Bob starts Monday. “We’ll get the contract signed next week.” Next week becomes next month. Contract never gets signed.
Why “later” doesn’t work: Once Bob starts working, he’s already employed under the terms of the offer letter (or worse, an implied contract). Any contract you send after he starts requires fresh consideration. “Continued employment” is NOT consideration. If Bob refuses to sign, you can’t force him. If Bob signs without consideration, it’s unenforceable.
The damage: You think you have a signed contract limiting Bob’s severance. You terminate Bob. Bob’s lawyer points out the contract was signed 2 weeks after Bob started with no fresh consideration. Contract is void. Bob gets common law notice — potentially 10x what you thought you owed.
Scenario: You hire Bob as a marketing manager, $80K/year, age 48.
What you think you owe (with valid contract): ESA minimum equals 5 weeks (based on 5 years’ service) equals $7,692.
What you actually owe (no valid contract): Common law notice equals 8 to 10 months equals $53,000 to $66,000.
The difference: $45,000 to $58,000.
Multiply that by every employee you’ve hired without a signed contract.
Draft the full employment contract NOW. Include termination clause, IP assignment, confidentiality, non-solicitation, probation period, anti-obsolescence clause. Have Bob sign it BEFORE his first day of work. Keep signed copy on file.
You have three options.
Option 1: Offer Fresh Consideration (Safest)
Give Bob something of value in exchange for signing: signing bonus ($500 to $5,000), salary increase, additional vacation days, enhanced benefits. Present the contract with a cover letter explaining the consideration. Give Bob time to review (minimum 72 hours, ideally a week). Do NOT threaten termination if he refuses. Pay the consideration AFTER he signs.
Option 2: Working Notice + Re-Hiring
Give Bob written notice that his employment will terminate in X months (where X equals his reasonable notice entitlement). At the end of the notice period, offer to re-hire him under a new contract. He can accept or decline. This works but it’s expensive and risks Bob leaving during the notice period.
Option 3: Accept the Risk
Leave things as they are. Hope you never have to terminate Bob. If you do, pay common law notice. This is the riskiest option but sometimes the only practical one for long-term employees.
Don’t just hand Bob a contract and say “sign this” — without consideration, it’s worthless. Don’t threaten to fire him if he doesn’t sign — that’s duress and makes the contract unenforceable. Don’t implement new terms before getting signatures — that’s unilateral change and triggers constructive dismissal. Don’t assume “he’ll probably sign it” — he might, but if he doesn’t, you have no recourse.
Without a signed contract: IP Bob creates might not belong to you (depends on the nature of his work and whether creation of IP was part of his core duties). Confidentiality obligations are minimal — limited to true trade secrets. Bob can walk out and use your client lists, pricing models, business strategies.
Real example: Software developer Bob writes code for your SaaS product. No signed contract with IP assignment. Bob quits, takes the code, starts competing business. You sue. Court says: Was creating that specific software part of Bob’s core employment duties as understood at hiring? If unclear, Bob might have rights to the code.
The fix: Get a signed contract with explicit IP assignment clause BEFORE Bob creates anything valuable.
RascalHR’s employment contracts are designed to be signed before employment begins. We include all protective clauses: termination, probation, IP assignment, confidentiality, non-solicitation, anti-obsolescence. Province-specific and updated for current case law.
The workflow: Make offer, generate contract in Rascal, have candidate sign, employee starts with full protection in place.
No “we’ll handle it later” — the contract is part of the hiring process, not an afterthought.
Every employee has an employment contract — the only question is whether it’s the one you wanted.
Working even one day without a signed contract means common law defaults apply. Common law defaults are expensive: potentially months of severance instead of weeks.
The “I’ll send it later” approach costs Canadian employers tens of thousands of dollars in unnecessary severance every year.
Fix it before Bob starts — not after you fire him.