What Business Owners Need to Know About U.S. vs. Canadian Contracts

Hey, Canadian entrepreneurs- If you’ve ever grabbed a contract from a U.S.-based resource or assumed the legal stuff “pretty much works the same” north of the border—this blog is for you.

While the U.S. and Canada share some common legal DNA (thanks, British law roots!), contract law has some crucial differences that could seriously affect your business if you’re not careful. So let’s dive into what you really need to know before you send out that next client agreement.

Not All Clauses Are Created Equal

You know those “standard” clauses at the bottom of your contracts—things like “Venue & Jurisdiction,” “Force Majeure,” or “Entire Agreement”? In U.S. contracts, they often feel like afterthoughts. But in Canada? Courts actually pay close attention to these clauses—and expect them to be clearly written and enforceable under Canadian law. Bottom line: A vague or U.S.-centric clause could either be ignored or interpreted in ways you didn’t expect. 

The Losing Party Usually Pays Legal Fees in Canada

Here’s a biggie: In the U.S., both parties usually pay their own legal costs, even if they win or lose. But in Canada, courts often require the losing party in a dispute to pay the winner’s legal fees. This means the losing party has to pay a portion of the winner’s legal costs, based on a set fee schedule (called a tariff) that varies by province. The amount depends on things like how complex the case was or how much money was involved. In some situations, the court might also order “solicitor-client” costs, which cover a bigger chunk—or sometimes all—of the winning side’s actual legal fees. While this type of award used to be rare, courts are now more willing to grant it to discourage people from taking unnecessary or overly aggressive legal action.

Governing Law and Jurisdiction Clauses Matter More Than You Think

U.S. templates often default to something like “This agreement will be governed by the laws of the State of California.” In Canada, if you’re based in Alberta but your contract says it follows Ontario law (because that’s what your template said), that could lead to confusion or even make the contract unenforceable. Your contracts should reflect the province you do business in and be designed with Canadian legal norms in mind.

Employment Contracts are vastly different! 

Employment law in Canada is split between federal and provincial jurisdictions. Most employees fall under provincial law, but if you work in industries like airlines, banks, telecommunications, or the postal service, you’re likely covered by federal law instead. The main difference is that federal employees are governed by the Canada Labour Code, while provincial employees follow employment standards set by their province. It’s important to know which set of rules applies to your business, because rights and obligations—like vacation time, termination notice, and overtime—can vary depending on whether you fall under federal or provincial regulations. It’s also worth noting that Canadian common law tends to look a bit different as it tends to grant employees with additional rights and protections. When there's any confusion or unclear wording in an employment contract, courts usually interpret it in the way that benefits the employee the most.

When deciding whether someone is an employee or an independent contractor, courts don’t just rely on what the contract says. Instead, they look at the overall relationship and what both sides actually intended when the work arrangement started—even if there isn’t a formal contract. A recent case from the Saskatchewan Court of Appeal confirmed this approach. In that case, a woman was treated as an independent contractor for 16 years, but the court found that she was actually an employee based on how the working relationship functioned in reality. The key question is whether the person was truly running their own business or simply working like an employee.

Employers must provide a minimum statutory notice period (or pay in lieu) when terminating an employee. If the contract doesn’t specify notice, common law “reasonable notice” applies—this can be substantial. For severance pay: Rule of thumb for common law severance is one month's pay for each year of service, though this isn't always the case, just a general guide.

In employment law, the wording of a contract really matters—but it’s not the final word. Just because a contract labels someone as an “independent contractor” or an “employee” doesn’t mean the court will automatically agree. Canadian courts look at the full picture to figure out what the working relationship actually is, especially if the contract is vague or inconsistent. That’s why it’s so important for the contract to clearly reflect the true intentions of both parties. If it doesn’t, and there’s any ambiguity, a judge may end up interpreting the contract in a way that neither side expected—often in favor of the employee. Carefully drafted language can make all the difference in avoiding disputes down the road.

In the US most states, employment is “at will”, meaning an employee can be terminated at any time for any lawful reason, with or without notice. California is an exception in some ways, offering more protections (e.g., stricter wage and hour laws, required rest breaks, anti-retaliation provisions).

The Legal Paige Has Your Back (Canada Edition!)

We know our Canadian friends deserve just as much contract confidence as our U.S. crew. That’s why we’ve teamed up with a Canadian attorney to adapt our most popular templates for your local laws.

NOTE: These common law principles do not apply in Quebec, which follows a civil law system. Contract interpretation and employment classifications are handled differently under Quebec’s legal framework.

Whether you’re a coach, photographer, wedding pro, or service provider, we’ve got legally legit Canadian contract templates that are clear, enforceable, and written in a way your clients can actually understand.

THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.

See our full disclaimer here.