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The Importance of an Employment Agreement
The Importance of an Employment Agreement

Learn why an Employment Agreement is important for all your Employees

Shane Murphy avatar
Written by Shane Murphy
Updated over a week ago

An Employment Agreement contains all the terms regarding the services provided by the employee, the employee's compensation, vacation pay, termination, and other terms related to the employee's work.

It is very important to commit these terms to writing in a comprehensive Employment Agreement so the job requirement and responsibilities are clear to the employee and employer. Without a clear written agreement, disputes and misunderstandings can arise without any easy resolution. 

It is also important to have employees sign an Employment Agreement before starting work for the company. After the employee starts work, it is improper to replace the employee's "verbal contract" with a written agreement. Therefore, the Employment Agreement should be provided early, so the employee can review the agreement and obtain advice. 

An Employment Agreement is unique because ultimately employers and employees are subject to the provincial Employment Standards Act (ESA). The ESA is the general law governing the relationship between employees and employers, and includes provisions governing all the essential elements of employment.  While an Employment Agreement must contain all the key elements related to employment, the agreement must be fair, respectful of the employee's rights, and compliant with the ESA. 

Employee or Contractor?

Before preparing an Employment Agreement, it is important to consider whether the individual is providing services as an employee or a contractor. This is more complicated than it appears, as the distinction between employees and contractors is somewhat complex and there are important distinctions between the two. 

Any person who provides services to your company is broadly classified as a "worker". Workers then fall into two categories: employees and contractors.

Defining an employee or a contractor depends upon the nature of that individual’s engagement within an organization. Below are some of the key factors that will determine whether an individual is an employee or contractor. If it appears that your worker is a contractor rather than an employee, you should use the Contractor Agreement. 

Duration of Engagement

For employees, the engagement is usually for an undefined duration. For contractors, the duration is set for a specific time period or related to specific goals. 

Time Commitment

Employees are expected to work exclusively for the company and for a specific number of hours per week. 

Contractors typically set their own schedules and can work for numerous companies at the same time.

Payment and Taxes

Employees will have their taxes and remittances deducted by their employer.

Contractors will receive a gross sum and be responsible for paying their own taxes and remittances.


When terminated, employees are usually entitled to notice of termination and/or termination pay. 

Contractors have no automatic right to termination pay or notice. Their compensation depends on what is in the Contractor Agreement.

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