Implied Terms — Ontario Employment Law
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About Implied Terms
When you accept a job in Ontario, your employment relationship is governed by a contract. However, that agreement goes far beyond the words written on the page or spoken during an interview. Under Ontario law, certain obligations and rights are automatically woven into your job through what are known as "implied terms."
Implied terms are legally binding conditions that exist even though they were never explicitly discussed. These unwritten rules come from a few different sources. First, statutory law automatically implies minimum standards into every employment contract. For example, the Employment Standards Act, 2000 (ESA) guarantees rights regarding minimum wage, vacation pay, and basic termination notice. An employer cannot ask you to contract out of these rights; they are firmly implied by law.
Second, the common law (judge-made law) reads fundamental duties into the employment relationship. The most impactful of these is the implied right to reasonable notice of termination. Unless you have signed a valid, enforceable termination clause that legally limits your entitlements, Ontario courts will imply that you are owed common law reasonable notice—which is often significantly more generous than ESA minimums. Other common law implied terms include the employer’s duty to treat employees with decency, civility, and good faith, as well as the employee's reciprocal duty of loyalty and fidelity to the employer’s business interests.
Finally, a court may imply a term based on the concept of "business efficacy" or established industry custom. This happens when a specific rule is so obvious and necessary that the contract simply would not function without it. However, courts are highly cautious about doing this. In recent Ontario cases, employers have tried to argue they had an "implied right" to unilaterally reduce an employee's compensation during hard times, or an "implied term" that an employee must pay the company back for trading losses or mistakes. Usually, courts reject these arguments, refusing to imply terms that drastically favor the employer without clear, written consent.
Because resolving a dispute over unwritten obligations requires a deep dive into the specific history of your workplace, industry norms, and common law precedents, relying on assumptions can be risky. Having an Ontario employment lawyer evaluate your specific situation is the most reliable way to figure out which unwritten rules actually hold legal weight in your contract.
Frequently Asked Questions
What exactly is an implied term in an employment contract?
An implied term is a legal obligation or right that is not expressly written down or spoken by either the employer or the employee, but is still legally binding. These terms are read into the contract by Ontario courts because they are mandated by employment statutes, established by common law, or are strictly necessary for the contract to function.
If my contract doesn't mention severance, what are my rights?
If your contract is silent on termination or severance, Ontario common law automatically implies a term stating you are entitled to "reasonable notice" of dismissal. This unwritten entitlement is based on your age, length of service, and position, and frequently amounts to much more than the minimums required by the Employment Standards Act.
Does my employer have an implied right to change my pay or duties?
Generally, no. Unless your written employment contract includes clear, unambiguous language granting the employer the discretion to alter your compensation or major duties, courts will not imply a term allowing them to do so. Unilateral reductions in pay often breach the contract and can trigger a constructive dismissal.
Can my employer claim I have an implied duty to pay for business mistakes?
Ontario courts very rarely imply terms that require employees to indemnify their employers for routine business losses, such as trading errors or broken equipment. Unless there is a very clear written agreement (and deductions comply with the ESA) or evidence of intentional misconduct, an employer cannot simply invent an implied rule to make you pay for a mistake.
How do courts decide if a missing rule should be implied based on industry custom?
To imply a term based on custom, the rule must be so well-known, universal, and obvious in your specific industry that both parties clearly intended for it to apply. It cannot just be the employer's personal internal practice; it must be necessary for the "business efficacy" of the contract.
When should I have a lawyer look at an unwritten workplace policy?
You should seek professional legal guidance if your employer suddenly enforces a harsh unwritten rule—such as withholding a bonus or commission—and claims it was "implied" or understood. A legal professional can determine if that unwritten rule is actually enforceable under Ontario law.
Common Scenarios
- A senior sales representative secures an unusually massive order, but the employer refuses to pay the full commission, arguing there has always been an "implied understanding" that extraordinary windfalls are capped. The employee pushes back because the written commission agreement says nothing about an earnings cap.
- During an economic downturn, a corporation cuts a manager's salary by 15%, claiming management obviously has the implied discretion to adjust compensation based on business realities. The manager challenges this, asserting it is a breach of contract rather than an implied right.
- A newly hired technician is fired completely without cause after three years of service. Because they were hired via a simple handshake and never signed a termination clause, the court enforces their implied common law right to reasonable notice, awarding several months of severance.
- A financial services worker makes a calculation error that costs the firm money. The employer attempts to withhold a portion of the worker's wages, arguing there is an implied contract term requiring employees to indemnify the business for trading losses.
What You Should Know
- Do not assume that an employer's long-standing, informal workplace practice automatically equates to a legally binding implied term without clear evidence of mutual agreement.
- Always check your written contract for an "entire agreement" clause, which employers often use to try to block you from relying on unwritten promises or implied terms discussed during the hiring process.
- If an employer tries to rely on an "industry standard" to deny you an earned benefit, ask them to point to where this exception is codified in writing or in an applicable policy.
- Before resigning in response to an employer's breach of an unspoken rule—such as the implied duty of good faith and fair dealing—consult with an employment law practitioner to build a strategic record of the issue.
Featured Cases
P. v. Qualified Metal Fabricators Ltd.
2023 ONCA 255 (CanLII) · 2023-04-13Constructive Dismissal: Layoffs and Implied Terms Appeal
This is an appeal from a summary judgment decision in a constructive dismissal case involving an employee laid off during the COVID-19 pandemic. The Court of Appeal set aside the summary judgment because the motion judge erred by assuming consent to the procedure, and remitted the matter for trial to determine whether an implied term permitted the layoffs and whether the employee condoned them.
B. v. JC Clark Ltd.
2022 ONCA 614 (CanLII) · 2022-08-29Appeal allowed in part: discretionary bonus awarded
This is an appeal from a trial decision involving portfolio managers claiming entitlement to performance fees and discretionary bonuses under their employment agreements. The Court of Appeal upheld the dismissal of the performance fee claims but allowed the appeal in part regarding the bonus. Finding that an employer's discretion to award bonuses must be exercised fairly and reasonably, the court awarded each manager a $115,000 bonus.
G. v. Promark Electronics Inc.
2018 ONSC 5500 (CanLII) · 2018-09-21Constructive Dismissal: Document Production Appeal
This is an interlocutory appeal concerning the relevance and proportionality of document production in a wrongful dismissal action. The employee alleged constructive dismissal following unilateral compensation reductions, while the employer relied on an implied contractual term granting discretion to adjust pay based on business realities. The court addressed whether financial records from 2002–2016 were relevant to testing the employer's claim of implied discretion.
Hampton Securities Limited v. T.
2017 ONCA 69 (CanLII) · 2017-01-25Employment Contract: Employee Liability for Trading Losses
This is an appeal from a motion judge's decision in an employment contract dispute where the employer sought to recover trading losses from a former employee. The Court of Appeal for Ontario upheld the motion judge's finding that there was no express or implied term making the employee personally liable for such losses, nor was there evidence supporting an industry practice to that effect.
Hampton Securities Limited v T.
2016 ONSC 1743 (CanLII) · 2016-03-10Employment Contract: Indemnification for Trading Losses
This is an interlocutory or merits decision regarding an employment contract dispute where the employer sought indemnification from the employee for trading losses. The court found no express or implied term in the employment contract requiring such indemnification and dismissed the employer's claim due to lack of contractual basis.
P. v. Academic Clinicians’ Management Services
2013 ONSC 7787 (CanLII) · 2013-12-17Common Employer Doctrine & Contract Breach in Medical Fellowships
This is a merits decision on a certification motion and summary judgment application involving a dispute over whether Academic Clinicians’ Management Services (ACMS) was an employer of Fellows and whether it breached employment contracts by failing to gross up Fellowship Amounts for tax liability. The court applied the common employer doctrine to find ACMS was an employer for liability purposes but found no express or implied term guaranteeing tax-free amounts. The certification motion was dismissed because individual issues predominated, and summary judgment was granted dismissing the Plaintiffs’ action.
F. v. Southmedic Incorporated
2012 ONSC 4472 (CanLII) · 2012-09-11F. v. Southmedic: Commission Agreement Enforceability
This case concerns a dispute over the enforceability of commission and bonus agreements between an employer and a sales representative. The court addressed whether bonus agreements reducing commissions for extraordinary orders were valid, whether implied terms excluded such sales from commission calculations, and whether unilateral notices limiting commissions were effective. The court found the agreements enforceable, rejected the implied term argument, and determined the unilateral notice was ineffective without clear acceptance.
C. v. Fri Corporation
2006 CanLII 31723 (ON CA) · 2006-09-12C. v. Fri Corporation: Constructive Dismissal Appeal
This is an appeal to the Court of Appeal from a trial judge's decision regarding constructive dismissal. C.C. sued Fri Corporation after being suspended indefinitely without pay and demoted. The trial judge found that the employer's actions were punitive and constituted constructive dismissal. The Court of Appeal agreed, finding the employer lacked an implied right to suspend the employee without pay. The employer's appeal was dismissed.
Tsp-Intl Ltd. v. M.
2006 CanLII 22468 (ON CA) · 2006-07-04Independent Contractor: Implied Terms & Fiduciary Duty Appeal
This is an appeal to the Court of Appeal from a trial decision concerning an IT company that sued its former independent contractor, B.M., after he contracted directly with one of its major clients. The trial judge dismissed the company's pleaded claims of breach of fiduciary duty and breach of confidence, but found the contractor liable based on unpleaded theories of good faith and implied terms. The Court of Appeal ruled that the trial judge erred by deciding the case on theories that were never pleaded, which deprived the contractor of a fair trial. The appeal was allowed, the cross-appeal was dismissed, and the action was dismissed.
Sigpro Wireless Inc. v. C.
2005 CanLII 6370 (ON CA) · 2005-03-16Wrongful Dismissal: 5-Month Notice for Temporary Layoff
This appeal from the Court of Appeal for Ontario concerns whether a temporary layoff constituted a termination of employment without notice or cause. The Court upheld the trial judge's finding that the layoff was an unlawful termination and affirmed the five-month notice period awarded, rejecting the employer's argument that economic circumstances or an implied term should reduce the notice.
M. v. Newman, Oliver & McCarten Insurance Brokers Ltd.
2004 CanLII 15915 (ON CA) · 2004-01-21Constructive Dismissal: Unilateral Location Change
This is an appeal to the Court of Appeal for Ontario from a Divisional Court decision in a constructive dismissal case. The Court of Appeal restored the trial judge's finding that the employer's unilateral transfer of the employee to a significantly farther location breached an implied term of the employment contract, thereby constituting constructive dismissal. The court also awarded the appellant costs of $10,000.
R. v. Grenville Management Services Ltd.
2002 CanLII 41474 (ON CA) · 2002-10-28R. v. Grenville: Employment Contract Interpretation
This is an appeal to the Court of Appeal for Ontario concerning the interpretation of an employment contract and the existence of implied terms. The court reviewed the lower court's decision regarding the contractual relationship between the employee and the employer.
K. v. Sharp Business Forms Inc.
2001 CanLII 28301 (ON SC) · 2001-05-08Employment Standards Class Action: Certification of ESA Implied Terms Claim
A class action certification motion under the Class Proceedings Act, 1992, involving employees seeking to challenge whether statutory employment standards under the Employment Standards Act (ESA) are implied terms of employment contracts. The case addresses whether a civil action is a permissible alternative to administrative procedures under the ESA and whether the proposed representative plaintiff adequately represents the class.
F. v. Town of Fort Erie
1982 CanLII 2121 (ON SC) · 1982-10-06Wrongful Dismissal: Mental Distress Damages and Jury Trial Appropriateness
A wrongful dismissal case where the plaintiff sought damages for mental distress and employment benefits beyond salary. The court considered whether a jury trial was appropriate given the unsettled legal issues and complexity of damages assessment, ultimately deeming it inappropriate.
McIntyre Porcupine Mines Ltd. v. H.
1975 CanLII 642 (ON SC) · 1975-11-16Enforcement of U.S. Securities Judgment in Ontario Employment Context
This case addresses whether a U.S. court judgment based on the Securities Exchange Act of 1934 is enforceable in Ontario and whether an employment contract contained an implied term requiring compliance with U.S. securities laws. The court found the U.S. statute lacked extraterritorial effect and that no such implied term existed in the employment or stock-option agreements.
Re G. and Hamilton Tiger-Cat Football Club Ltd.
1975 CanLII 532 (ON SC) · 1975-03-12Professional Football Contract: Disclosure and Misrepresentation Issues
A professional football player's contract with the Hamilton Tiger-Cat Football Club was examined for issues of disclosure, misrepresentation, and implied terms. The court held that contracts of personal service are not uberrimae fidei, silence does not constitute misrepresentation without a fiduciary relationship, and that no implied term limiting the schedule to 14 games could be added as the contract was clear and unambiguous.
Canadian Aero v. O.
1971 CanLII 46 (ON CA) · 1971-06-18Canadian Aero v. O.: Fiduciary Duties
This is a contractual dispute involving former employees and their fiduciary duties to their employer. The case addresses implied terms within the contract of employment, specifically focusing on the obligations of employees regarding corporate opportunities upon leaving their position. This decision was appealed to the Supreme Court of Canada, which reversed it (Can. Aero v. O., [1974] SCR 592). The Supreme Court allowed the appeal against all defendants except Wells, finding that O. and Zarzycki breached their fiduciary duty to Canadian Aero Service Limited by usurping a corporate opportunity. Judgment was entered against them and Terra Surveys Ltd. for $125,000.
W.J. Gage Ltd. v. S.
1967 CanLII 208 (ON SC) · 1967-04-06Employee Inventions: Ownership and Implied Terms
This case addresses whether inventions created by an employee during the course of employment belong to the employer or the employee under the implied term of the employment contract. It further examines whether an employee manual or suggestion plan can displace this implied term and the effect of filing an invention under an employer's suggestion plan on ownership rights.
Re Sandwich, Windsor and Amherstburg Railway Co. et al.
1961 CanLII 153 (ON CA) · 1961-12-16Mandatory Retirement: Arbitration Award Quashed
An appeal to the Court of Appeal for Ontario from an arbitration board's award regarding a collective agreement's pension provisions and mandatory retirement. The majority held that the arbitration board exceeded its jurisdiction by implying a restriction on the employer's management rights to enforce mandatory retirement at age 65, allowing the appeal and quashing the arbitration award.
Z. et al. v. Shiffer and Hillman Co. Ltd.
1933 CanLII 179 (ON CA) · 1933-04-24Frustration of Employment Contract Due to Union Violence
This is a merits decision from the Court of Appeal for Ontario concerning an individual employment contract that guaranteed employment for one year. The central legal issue was whether the contract was frustrated by external factors, specifically union violence and the resulting destruction of the shop, which rendered performance impossible.