red flags in Ontario business contracts

The biggest red flags in Ontario business contracts are ambiguous language, automatic renewal clauses, one-sided indemnities, defective termination clauses that violate the Employment Standards Act, unenforceable non-compete clauses, unclear payment terms, and outdated template language. Each can turn a routine agreement into a costly dispute. Professional legal review catches these before you sign.

Contracts govern nearly every meaningful business relationship, clients, suppliers, landlords, partners, and employees. When a contract is carefully drafted, it rarely makes the news. When it is poorly drafted, the cost tends to surface at the worst possible moment: a dispute, a sale, a CRA audit, or a termination. Over the past five years, Ontario contract law has shifted significantly, and older templates that once looked airtight may no longer hold up in court.

At Hadri Law, we review business contracts every week for founders, established companies, and cross-border clients across Toronto and the GTA. This guide walks through the red flags we see most often, in commercial contracts generally, in employment contracts specifically, and in the case for bringing in professional review before you sign.

General Red Flags in Ontario Business Contracts

Most commercial contracts, from supply agreements to commercial leases, share a common set of warning signs. These are the items to flag and push back on during negotiation.

Ambiguous or Vague Language

Terms like "reasonable efforts," "as needed," and "satisfactory performance" without definitions are invitations to dispute. Ontario courts generally interpret ambiguous terms against the party that drafted the contract (contra proferentem), but by the time that rule helps you, you are already in litigation. If a term matters, define it.

Automatic Renewal Clauses Without Meaningful Notice

"Evergreen" clauses that renew a contract for another full term unless you opt out within a short window, sometimes as little as 30 days before the renewal date, are common in supply, software, and service agreements. Calendar the opt-out date the moment you sign, and negotiate longer notice periods.

One-Sided Indemnities and Liability Caps

If you indemnify the counterparty against broad categories of loss while their liability is capped at the fees paid, you have absorbed all the risk of the relationship. Mutual indemnities and reasonable caps tied to the value of the contract are more typical in arm's-length commercial deals.

Missing or Unclear Termination Rights

Watch for contracts without a right to terminate for convenience, without a cure period for breaches, and without a clear exit if the counterparty underperforms. A contract that only the counterparty can exit is a liability, not an asset.

Unclear Payment Terms

"Payment upon receipt" is not Net 30. Contracts should specify the payment window, late-payment interest, the process for disputing an invoice, and what triggers a suspension of services for non-payment.

Hidden Fees and Price-Escalation Clauses

Contracts that allow the counterparty to increase fees based on "market rate," CPI-plus formulas, or "operating cost adjustments" (common in commercial leases) should be scrutinized. Ask for a cap, a floor, or a defined index.

Overreaching Restrictive Covenants

Confidentiality, non-solicitation, and non-compete clauses that last for years and cover broad geographies or industries can significantly limit your ability to operate after the contract ends. In employment contracts specifically, most non-competes are now void in Ontario (more on this below).

Weak or Inappropriate Dispute Resolution

Mandatory arbitration in a distant jurisdiction, a governing law that is not Ontario, or "loser-pays" fee structures can shift leverage in any future dispute. Insist on Ontario governing law and consider whether arbitration or the courts are the better forum for your business.

Assignment Clauses That Favour the Counterparty

If the other side can assign the contract to a subsidiary, affiliate, or third party without your consent, you can end up doing business with a company you never chose. Require consent for assignment, with limited carve-outs.

Outdated Template Language

A contract copied from a template that has not been updated in several years may reference repealed statutes, omit newer protections, or use clauses that courts have since invalidated. This is especially true for employment contracts, as the next section shows.

Inconsistent or Contradictory Terms

Watch for situations where the body of the contract says one thing and a schedule or exhibit says another. Defined terms should be consistent across the entire document, and cross-references to schedules should be accurate.

Employment Contract Red Flags: The Highest-Risk Category

Employment contracts deserve their own section. They are the contracts where Ontario businesses lose the most money per mistake, and recent Court of Appeal decisions have cast doubt on the enforceability of a significant number of employment contracts that have not been updated.

Defective Termination Clauses

Ontario's Employment Standards Act, 2000 (ESA) sets minimum termination and severance entitlements. A contract cannot contract below these minimums. In Waksdale v. Swegon North America Inc., 2020 ONCA 391, the Court of Appeal held that if any part of a termination provision violates the ESA, the entire termination clause is unenforceable, including the "without cause" portion that might otherwise have been valid.

More recently, in Dufault v. The Corporation of the Township of Ignace, 2024 ONCA 915, the Court of Appeal upheld the finding that a "for cause" termination clause was unenforceable for failing to comply with the ESA. The lower court in Dufault also found that termination language giving the employer the right to terminate "at any time" or in its "sole discretion" was inconsistent with the ESA, a point the Court of Appeal did not need to address on the appeal, but which remains persuasive for employers reviewing their templates.

A voided termination clause matters because, without it, the employee is entitled to common-law reasonable notice, often many months of pay, significantly higher than ESA minimums. Red flag phrases to search your contracts for include:

"at any time"
"in our sole discretion"
"for any reason"
"for cause" without a definition tied to the ESA standard of wilful misconduct, disobedience, or wilful neglect of duty
Broad lists of termination grounds such as "poor performance" or "dishonesty" without reference to the wilful-misconduct standard

Illegal Non-Compete Clauses

Section 67.2 of the Employment Standards Act, 2000, added by the Working for Workers Act, 2021 and in force as of October 25, 2021, prohibits employers from entering into employment contracts that contain non-compete agreements. Narrow exceptions apply for executives and for non-competes included in the sale of a business, but the default rule is that a non-compete in a standard Ontario employment contract is void.

Keeping a void non-compete in a template does two harmful things. First, it provides no actual protection. Second, courts may view an over-reaching clause as evidence of bad drafting that colours how other restrictive covenants, such as non-solicitation clauses, are interpreted.

Non-solicitation clauses, restricting former employees from soliciting clients or other employees, remain enforceable in Ontario when drafted narrowly and tied to a legitimate business interest.

Vague Job Descriptions

Contracts that describe the role only in general terms, or rely heavily on phrases like "other duties as assigned", allow employers to expand duties without a corresponding change in pay or title. If the expansion is material, it may trigger a constructive dismissal claim. Employers and employees both benefit from clear role definitions and thoughtful change-in-duties language.

Probation Periods Beyond Three Months

Under s. 54 of Ontario's Employment Standards Act, 2000, employees with three months or more of continuous service are entitled to statutory notice of termination or termination pay in lieu. Probation periods that extend past the three-month threshold without ESA-compliant termination language create a trap: the employer thinks it can dismiss without notice, but the statute now protects the employee.

Missing or Inadequate Entitlements

Employment contracts that do not address vacation pay, statutory holidays, overtime, or bonus eligibility leave both sides exposed. Employers risk claims for unpaid entitlements; employees are uncertain about their compensation. Intellectual property assignment and confidentiality obligations are also frequently missing from templates, which is especially costly for businesses that rely on employee-created work product.

Outdated Employment Templates

If your employment contract template has not been updated since 2020, it is almost certainly non-compliant today. Waksdale changed termination-clause analysis. Dufault tightened it further. The Working for Workers Act banned most non-competes. An annual review of your employment template is one of the highest-return legal tasks a business can do.

Costly Business Contract Mistakes Beyond Employment

Employment contracts are the single highest-risk category, but other contract types produce expensive disputes with regularity.

Commercial leases. Unlike residential tenancies, Ontario commercial leases have almost no statutory default protections, nearly everything is negotiable, and nearly everything matters. Watch for personal guarantees that survive assignment, triple-net cost allocations, relocation clauses, and percentage-rent audit rights.

Service and supply agreements. Service-level agreements without real remedies are common. So are acceptance criteria that heavily favour the supplier and change-order processes that give the counterparty unilateral pricing power.

Independent contractor agreements. If the "contractor" functions like an employee, subject to direction, using the company's tools, working exclusively for one client, the Canada Revenue Agency and Ontario courts may reclassify the relationship. The result can include back taxes, CPP and EI contributions, vacation pay, and termination pay.

Shareholders agreements. Missing shotgun clauses, no drag-along or tag-along rights, and deadlock provisions that freeze the business are common in DIY shareholder agreements. These gaps become painful only when shareholders disagree.

Franchise agreements. The Arthur Wishart Act (Franchise Disclosure), 2000 imposes strict disclosure requirements on franchisors. Renewal and termination traps in franchise agreements are a frequent source of litigation.

Why Professional Contract Review Matters for Ontario Businesses

Given the red flags above, the case for professional contract review is less about hiring a lawyer and more about risk-adjusted return on investment.

Catching What You Cannot See

The most damaging clauses are rarely the ones that look aggressive. They are the normal-looking boilerplate clauses that have been refined over many drafts to favour the drafting party. Professional reviewers know where to look because they have seen the same clauses fail in the same ways, repeatedly.

Applying Current Case Law

Contract law in Ontario is moving quickly. A template that was fine in 2020 may be unenforceable in 2026. Lawyers who focus on commercial and employment law track decisions like Waksdale, Dufault, Rahman, and Humphrey and update their review checklists accordingly.

Understanding Industry-Standard Positions

A reviewer who works on these contracts weekly knows what "reasonable" looks like. That knowledge translates directly into negotiation leverage, you push back on the items that are actually negotiable, and you accept the market-standard positions without wasting energy.

Creating Negotiation Leverage

Counterparties take requested changes more seriously when they come through counsel. The review itself signals sophistication and makes the other side more willing to accept changes they would have pushed back on if asked directly.

Documenting the Deal

Post-signing disputes often turn on what the parties understood at signing. Written reviews, redlines, and negotiation emails create a contemporaneous record that can be decisive if the relationship deteriorates.

The Return on Investment

A contract review for a typical commercial agreement costs a small fraction of a single day of dispute-related legal fees. A single invalid termination clause can cost many months of severance. For most businesses, a professional review is a cost-effective step to manage contract risk.

What Professional Review Actually Includes

At Hadri Law, a full contract review typically delivers:

A line-by-line redline of the contract against Ontario law and current case law
A plain-English summary of the key risks and obligations
Recommended changes prioritized by impact and likelihood of acceptance
Negotiation guidance for changes the counterparty pushes back on
A sign-off memo documenting the review for your internal records

When to Get an Ontario Business Contract Reviewed

Not every contract requires professional review, but many do. A practical framework:

Always review: Commercial leases, every employment contract (especially those at director level and above), shareholders agreements, asset and share purchase agreements, franchise agreements, financing agreements, and any agreement that includes a personal guarantee.

Usually review: Material supplier agreements, large service agreements, intellectual property licences, and non-disclosure agreements when you are the party disclosing valuable information.

Often overlooked but worth reviewing: Software-as-a-service terms for mission-critical systems, independent contractor agreements, and engagement letters from your other professional advisors.

Frequently Asked Questions

How much does it cost to have a lawyer review an Ontario business contract?

Review fees vary with contract length and complexity, but most reviews cost a small fraction of the legal fees associated with a single day of litigation over the same contract. Hadri Law offers free initial consultations so we can scope the work and quote a fee for most standard Ontario business contracts.

Are non-compete clauses enforceable in Ontario?

Generally no. Section 67.2 of the Employment Standards Act, 2000, added by the Working for Workers Act, 2021, prohibits non-compete clauses in most Ontario employment contracts. Narrow exceptions exist for executives and for non-competes that are part of the sale of a business. Non-solicitation clauses, by contrast, remain enforceable when drafted narrowly to protect a legitimate business interest.

What makes a termination clause unenforceable in Ontario?

A termination clause can be struck down if any part of it violates the Employment Standards Act, 2000. Under Waksdale v. Swegon, a defect in one part of the termination provision voids the entire provision. The Dufault decisions have reinforced that expansive language such as "sole discretion" and "at any time" is problematic. When a termination clause is void, the employee is entitled to common-law reasonable notice.

How often should I update my employment contract template?

At minimum, review it annually. Ontario's Court of Appeal issues decisions on termination clauses regularly, and a template that was compliant in one year may not be compliant the next. Legislative changes, like the Working for Workers Acts, also trigger the need for an immediate update across all active employment contracts.

Can I use an online template for my Ontario business contract?

You can start with one, but you should never sign one without review. Online templates are written to cover as many jurisdictions as possible, which means they rarely reflect Ontario-specific requirements. They also age quickly and are often missing the drafting nuance that makes a clause actually enforceable.

Sources & Official Resources

Ontario Statutes Cited

Case Law

Canada Revenue Agency, Employee or Self-Employed?

Contact Hadri Law

If you are negotiating, signing, or renewing a business contract in Ontario, whether a commercial lease, supplier agreement, shareholders agreement, or employment contract, a professional review is one of the most cost-effective steps you can take to protect your business.

Hadri Law is a boutique corporate and commercial firm in downtown Toronto. We review contracts for founders, established companies, and cross-border clients, and we serve clients in English, French, Spanish, and Catalan.

Call (437) 974-2374 for a free consultation, or reach us at nassira@hadrilaw.com to schedule a contract review.

This article provides general information about Ontario contract law and is not legal advice. Every situation is different. Contact a lawyer to discuss your specific circumstances.