Includes FREE, Lawyer-Vetted Employment Agreement/Contract Templates and other valuable resources!

Thorough documentation is essential for effective nonprofit management, especially when it comes to employment relationships. While it’s true that many relationships, including employment, can exist without written contracts, relying on verbal agreements can lead to significant challenges. A well-structured employment agreement can be a valuable asset in ensuring smooth operations and protecting your mission. This article delves into the importance of employment agreements for Canadian nonprofits, explores key components, and clauses and offers valuable resources.   

Before you dive in, don’t forget to download all the free HR resources available in the article:

Why your nonprofit must have an employment agreement

Your employees can go on for many years working for you without a written agreement and if no issue ever arises, there’s never a dispute. However, without a clear, written agreement, misunderstandings can arise over time and the employee may set unrealistic expectations regarding compensation and duties. This may force you to have difficult negotiations with the employee or terminate the employee. The employee can file a wrongful termination and without a written agreement, you may be exposed to common law termination entitlements, which are significantly more costly than ESA minimums. 

Imagine this: a dedicated employee leaves your organization unexpectedly. Confusion surrounds their role and responsibilities, or questions arise about compensation and benefits. 

Employment agreements provide clarity, preventing these headaches and potential legal disputes. 

Well-drafted agreements are an investment in your nonprofit’s future. They protect your organization, safeguard your mission, and foster a positive working environment for your dedicated employees. By utilizing clear agreements and available resources, you can ensure a smooth and successful working relationship for all.

Let’s highlight the crown jewel of this article: the FREE Employment Agreement Template 2024 exclusively designed for nonprofits. We have templates for every province, except Quebec. Our comprehensive templates have been meticulously crafted by legal experts at HRC Law professional corporation. Grab your free template now!

DISCLAIMER: This employment contract template is provided for general information and reference purposes only. It is not intended to be used as a standalone legal document. We strongly advise seeking expert legal advice before utilizing this template. We take no responsibility for any damages that may occur from using this contract without consulting a lawyer or HR professional for proper legal guidance.

Here are the top three reasons why you should have an employment agreement:

  • Clarity: A well-drafted agreement outlines expectations for the employee and your organization. Roles, duties, compensation, and benefits are clearly defined, minimizing confusion and potential conflict.
  • Mitigating Risk: Agreements can protect your organization from risks like intellectual property theft, disparagement, and unfair competition.
  • Reducing Liability: Termination can lead to costly legal battles and significant common law liability. Agreements can limit damages by setting clear termination clauses that comply with applicable employment laws.

Essential clauses to include in a nonprofit employment agreement

1. General clauses 

This section outlines the employee’s specific roles, responsibilities, and duties. The level of detail will vary depending on whether the worker is an employee, volunteer, seasonal staff, or an independent contractor. Key terms of employment, including the offer, background checks, and any conditions for starting work, will be addressed here. Essential details such as the employee’s start date, any probationary period, work location, reporting structure, work schedule, and adherence to organization policies will also be included.

2. Compensation and benefits 

Clearly define salary, bonuses, commissions, health benefits, retirement plans, paid time off, and any additional perks.

  • Salary: The agreed-upon base pay, including any bonuses, commissions, or incentives.
  • Health and Retirement: Employer-provided benefits such as health insurance, dental coverage, and retirement plans. 
  • Paid Time Off: Vacation days, sick leave, and personal days that the employee is entitled to.
  • Perks and Allowances: Additional benefits like a company car, gym membership, or professional development funding.

3. Termination clauses 

Specify the grounds and procedures for termination or resignation, notice periods, severance provisions, and any post-employment obligations. This section is crucial and must comply with provincial employment laws. It should include:

  • Statutory Requirements: Specify the applicable minimum standards for termination, including notice periods and severance pay as per the applicable laws and jurisdiction. 
  • Common Law Principles: The courts have also established common law principles, which may be thought of as the “maximum” termination entitlements. Employees are entitled to maximums if the employment agreement is void for lack of consideration, or if the termination provisions in some way violate statutory requirements.

Employers seek enforceable termination provisions in employment agreements to limit their liability upon terminating an employee. If these provisions are valid, they can cap the employer’s obligations at employment standards minimum entitlements (e.g., about 1 week of pay per year of service, up to 8 weeks in most provinces). Without an enforceable agreement that has a valid termination clause, employers may be liable for common law termination entitlements, which are much higher (about 1 month of pay per year of service, up to 24-26 months). 

4. Restrictive covenants

Employment agreements may include additional clauses related to intellectual property, confidentiality, and competition:

  • Intellectual Property Rights: Agreements may stipulate that any work-related intellectual property belongs to the employer.
  • Confidentiality: Employees may be required to protect sensitive information of your organization.
  • Non-Competition and Non-Solicitation (if applicable): Clauses may restrict employees from soliciting clients or staff, or from working for competitors for a certain period after leaving the company. Noncompetes are illegal in Ontario except in very specific circumstances.
  • Non-Disparagement: Agreements may stipulate that any work-related intellectual property belongs to the employer

The importance of enforceable termination provisions

Termination clauses in employment agreements have become increasingly unreliable.

Consider a situation where an employee with 15 years of service decides to file a wrongful dismissal lawsuit after being terminated. As the employer, you might initially feel confident that this lawsuit will go nowhere. After all, the employment contract signed by the employee includes a termination clause clearly stating that they are entitled only to the statutory minimum payments as outlined in the relevant employment standards legislation. You may also feel secure because the employee willingly accepted these terms upon hiring, seemingly closing the door on any potential dispute. However, the outcome might not be as clear-cut as it seems.

The shocking twist

To your surprise, a mediator informs you that the termination clause in the contract is invalid. This means that instead of paying only the statutory minimums, you are now faced with the possibility of paying the employee common law notice, which can be substantially more than what you had initially anticipated. So, how did this happen?

Waksdale (2020) Case

In 2020, the Waksdale case was a significant turning point in Ontario. The court ruled that if any part of the termination section in an employment agreement is offside from the Employment Standards Act, 2000 (ESA), such as allowing termination without notice or pay for “just cause”, the entire termination section is invalidated. This means that if one clause in the termination section violates the ESA, the employer cannot rely on any part of that section, and the employee may be entitled to common law termination entitlements.

Henderson and Gracias (2022) Cases

In 2022, the Henderson and Gracias cases further complicated the situation. These cases involved invalid clauses outside the termination section itself, such as conflict-of-interest and confidentiality clauses. These clauses allowed termination without notice or pay in lieu of notice, which conflicted with the ESA. As a result, the courts ruled that the invalidity of these clauses infected the entire termination provision, making it unenforceable. Consequently, the employees were awarded common law termination entitlements.

Dufault v. The Corporation of the Township of Ignace (2024) Case

In 2024, the Dufault case further highlighted the fragility of termination provisions. In this case, the employer’s without-cause termination clause included the phrases “at any time” and “at its sole discretion”. The employee’s counsel argued that these phrases violated the ESA, which restricts an employer’s ability to terminate an employee in certain situations, such as in reprisal or upon return from a leave. The court agreed, finding that the wording in the contract conflicted with the ESA and rendered the entire termination provision invalid. As a result, the employee was entitled to common law termination entitlements and was awarded over $157,000.

Key points:

  • High costs of invalid termination clauses: Employers risk paying much higher termination amounts based on common law rather than statutory minimums if their clauses are deemed invalid.
  • Recent legal precedents: Several cases have struck down termination clauses due to various reasons, including vague language like “at any time” and “sole discretion”, and connections to other invalid contract clauses.
  • Impact on employers: Employers must carefully review and revise their employment contracts to ensure termination provisions comply with legal standards and effectively limit their liability.

Strategies to avoid common pitfalls

Given the ongoing trend of courts invalidating termination clauses, it’s crucial for employers to be proactive in drafting employment agreements. Here are some strategies to consider:

  1. Define “Just Cause” Carefully: While specifying what constitutes “just cause” might seem like a good idea, this approach can still leave employers vulnerable. If even one of the listed offences is deemed below the standard set by the ESA, the entire clause can be invalidated.
  2. Include an ESA Saving Clause: Many contracts include a clause stating that employees will receive their ESA entitlements regardless of any other terms in the agreement. However, this approach hasn’t always worked, as Ontario courts have sometimes ruled that these saving clauses don’t effectively protect the termination provision.
  3. Consider a “Cause-Neutral” Clause: One potential solution is to craft a termination clause that does not distinguish between “without cause” and “for cause” scenarios. Instead, the clause would state that the employee will receive the ESA minimum notice in all termination cases. An additional clause could be added to deny notice or pay in lieu of notice only if the employee’s behaviour meets the ESA’s “willful misconduct” standard. This approach might offer better protection under judicial scrutiny.

Enforceability of employment agreements

A well-crafted employment agreement is your first line of defense against disputes and costly legal battles. While internet templates might seem convenient, they often lack crucial provisions and can jeopardize the contract’s validity. To ensure your agreement holds up in court, consider these key elements:

  • Clear Terms: The agreement should be written in plain language, avoiding room for misinterpretation.
  • Consideration & Execution: Both parties must sign the agreement, and there must be a clear exchange of value (e.g., employment in return for compensation).
  • Provincial Variations: Employment laws vary by province. Ensure your agreement adheres to relevant regulations.   

Want to delve deeper? Click here to check out our in-depth article on the enforceability of employment agreements.

Updating and reviewing employment agreements

Outdated agreements can be as harmful as having no agreement at all. Changes in employment law, organizational structure, and employee roles occur frequently. Outdated agreements can lead to legal and operational risks. For instance, an old agreement might not comply with current labour laws, leaving the organization vulnerable to lawsuits. Additionally, outdated agreements might not accurately reflect the employee’s current role and responsibilities, leading to confusion and inefficiencies. Regular agreement reviews ensure that the organization remains compliant and aligns with its evolving needs. 

Don’t leave any stone unturned: Download our free checklist!

There are 59 critical factors to consider when drafting or reviewing your employment agreement. Our comprehensive Employment Agreement Checklist, created by legal experts at HRC Law Professional Corporation, will guide you through the process. This checklist is designed to help organizations who do not have contracts to understand what clauses are needed, and to help organizations who do have employment contracts to ensure they are sufficient to protect them.

Cost of an enforceable employment agreement

Investing in a well-crafted employment agreement is not a cost; it’s a strategic investment. While it might seem like an unnecessary expense, the potential consequences of not having one can be far-reaching. Without a clear contract, nonprofits risk facing costly legal battles, wrongful termination claims, and damaged employee relations.

Regularly reviewing and updating your employment agreements is crucial. Ensure that the contract remains enforceable and complies with the latest employment standards, such as those outlined in the Employment Standards Act (ESA) or equivalent provincial legislation. By taking proactive steps to protect your organization, you can foster a stable and productive work environment.

Watch our webinar recording featuring Ljubica Durlovska and Tom Archibald, experienced employment lawyers from HRC Law Professional Corporation, as they discuss employment agreements and termination clauses, including case studies and a Q&A session.

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Get your questions answered by An HR Expert

We understand that navigating the complexities of employment contracts can still raise questions and uncertainties. That’s why we’re here to offer further assistance. We invite you to book a free appointment with one of our HR experts, who will gladly address any doubts or inquiries you may have. Our goal is to ensure that your nonprofit organization operates with confidence, armed with the knowledge and tools necessary to maintain a fair and harmonious work environment. Don’t hesitate to reach out and take advantage of this opportunity to receive personalized guidance and have your specific questions answered. Together, we can strengthen your nonprofit and empower it to achieve even greater impact.

Disclaimer: 

This article is not intended as legal advice. This is a high-level overview. For specific advice, please contact us. 

This employment contract template provided in the article is for general information and reference purposes only. It is not intended to be used as a standalone legal document. We strongly advise seeking expert legal advice before utilizing this template. We take no responsibility for any damages that may occur from using this contract without consulting a lawyer or HR professional for proper legal guidance.

About HR Covered

At HR Covered, we have a deep understanding of the critical organisational needs and processes specific to Canadian nonprofits. We ‘get’ your culture, your goals, and what drives you, too. Our unparalleled responsiveness and impeccable service have helped more than 600 nonprofits in Canada to focus on their core activities. We provide a plethora of services including HR Compliance, Legislative Training, HR Documentation, Health & Safety Compliance, HR Legal, HR Consulting and Outsourcing. For more info visit our website: www.hrcovered.com or call us at +1 866-606-0149.