The Employment Contract

Written on behalf of Peter McSherry

A written employment contract can be an important issue in the employment relationship. There are a number of factors to consider whether this agreement is enforceable. It should not be presumed that the words on the paper are conclusive in determining your rights as an employee.

The Contract May Limit a Termination Claim

Often, an employer may seek to limit its liability on termination of employment by requiring the employee to sign a contract which purports to limit the sum which is payable on termination of employment without just cause.

The “common law” (i.e. law that has developed through legal precedents) imposes an implied term of “reasonable notice”. This allows a claim for lost income for this notice period, less any alternative income earned by the employee in this time period. The common law notice period is not mathematically calculated. It considers all factors such as the length of employment, position held, age of the employee, and whether the employee was induced to leave secure employment, to name some of the significant, but not all, factors.

This common law obligation can be “contracted-out” of, which is frequently a desire of the employer.

Such a contract should be reviewed with legal counsel to ensure that it is enforceable.

The Need for Consideration

Employees should be given their contracts before their employment starts, in order to be able to review and sign them. If, for example, the employee starts work on Monday and is then presented for the first time the agreement to be signed, it is very likely that the contract will not be a legally binding document.

This is because the law requires “consideration” (i.e. something of value), to be exchanged between the parties to create a binding contract.

Promotion

Where an employee has signed a valid contract and then is promoted to a more senior position, the contractual term will not likely follow the employee to the new position as the “substratum” of the contract no longer exists.

However, to the contrary position, an employer which presents am employee with a promotion, conditional upon the execution of a contract, will have a very good argument that the contract is binding.

The Statutory Minimum

Furthermore, an employment contract must always commit to providing the minimum obligations required by the Employment Standards Act.[1] Where the contract contains a provision which denies these statutory obligations[2], the contract will fail and common law obligations of reasonable notice will prevail instead. The logic behind this principle is that the minimum statutory entitlement provides a “floor of rights” that must always be honoured and the failure to do so will negate the contract.

Human Rights

If there is a remedy available to an employee because of a human rights violation, the termination provision in the employment contract, even if otherwise valid, will have no impact on the claim. An employee fired, for example, due to a disability, gender or age, will have a claim for lost income potentially through to the date of the hearing and also a reinstatement remedy or even a future income loss, which is completely unaffected by a termination clause limiting the claim.

Aggravated Damages

If there is unfair conduct at the time of termination, such as unfair allegations of serious wrongdoing, a claim may be made for “aggravated damages”. This is also  independent of what might very well be a valid termination clause.

Non-Compete Terms

Apart from an employer’s frequent attempt to limit an employee’s wrongful termination claim, the contract may also contain a term which prevents the employee from competing against the employer in the same industry. Such a clause is  very difficult to enforce.

A clause, however, which simply prevents the employee from soliciting the business of the employer’s clients for a limited time period such as 12 months will likely be enforceable. It is important to read this clause with care. A term which prevents the employee from not only soliciting, but also accepting business whether or not is solicited, will be viewed as a non-compete term and likely be unenforceable.

Any attempt made by the employer to tie this obligation to payment of the statutory minimum payments will lead to the demise of the non-solicit covenant.

What Does All This Mean?

It is clear that employment contracts can get complicated quite quickly and require.  competent legal advice. If you are an employee starting a new job, or are an existing employee and the terms of your employment have changed, you should not sign your employment contract or any other document unless you first seek advice from a knowledgeable employment lawyer.

Contact the offices of Guelph employment lawyer Peter McSherry. We regularly advise employees on their rights in the workplace. We review, advise on, and help employee negotiate the terms of their employment. Contact us online or by phone at 519-821-5465 to schedule a consultation.

[1] The minimum notice is 1 week after 3 months’ employment, 2 weeks’ after two years with increment of one week per year to a maximum of 8. Where the payroll exceeds $2.5 million annually and employment exceeds 5 years, an additional one per year of severance pay is mandated.

[2] The contract must deny the statute affirmatively, as opposed to being silent on the obligation.