Employment Contracts - Top 10 Things to Review

Top Things to Look for in an Employment Contract

In Ontario, every employee has an employment contract with their employer that states the terms of their job. It can be either oral or written. If an employment contract is in writing, it is especially important for an employee to review it with an employment lawyer before deciding whether to accept.

A written employment contract helps employers and employees minimize future disputes and costly litigation. If prepared properly, it will define a party’s rights and obligations during – and at the end of – employment.

When considering an employment contract, here are some of the most common elements to look for:

Probationary Period: employers will sometimes want to rely on a probationary period to determine if a new employee is suitable for continued employment. If required, a probationary period should be clearly written in the employment contract, so that the employee understands their job could end at any point during the stipulated period of time (usually without notice or pay). Without one, the common law requires that an employee’s job can only be terminated with reasonable notice, or for “just cause.” The obligation is on the employer to prove that the employee knew and accepted the probationary clause. Employees that have not agreed to a probationary period clause may be awarded notice pay under common law if they are successful in a wrongful dismissal claim.
Termination Clause: this term describes the rights, obligations and situations in which either the employer or employee can end the employment relationship. For example, it may refer to circumstances where the employer can terminate employment with or without “cause,” or where the employee voluntarily resigns. If an employee’s job is terminated “without cause,” the employer must provide at least the minimum amount of “notice” (or termination pay) required by the Ontario Employment Standards Act, which is one week per year of service (up to 8 weeks).
Compensation Clause: the full terms of the employee’s compensation should be set out in the employment contract. This can include base salary, health and medical benefits, life or disability insurance, bonuses and car allowance.
Fixed Term vs. Indefinite: if the job is only for a specific time frame, the employment contract will typically make that clear. Similarly, the contract should stipulate the amount of notice the employer will provide should the employee’s job end before the expiry of the fixed term. Otherwise, the employee may be entitled to the value of all compensation and benefits he or she would have earned over the unexpired portion of the term.
Employee’s Duties, Responsibilities and Location: the employee’s job requirements will usually be described in the employment contract. This helps to clarify the employee’s role with the company, while also helping minimize potential disagreements by making expectations clear from the outset.
Non-Competition and Non-Solicitation Agreements: these terms are usually difficult to enforce because they restrict workers from similar jobs in the same industry for a specific period of time after their employment ends. As a result, the courts will closely scrutinize them to ensure the employer can prove they protect a legitimate proprietary interest, and they are not excessive in terms of duration, geographic scope and the nature of the activities prohibited. The key is to use clear and unambiguous language, and not requiring more than is really necessary. As an alternative, some employers consider including a non-solicitation clause, which is more narrowly aimed at prohibiting the employee from soliciting customers, clients, suppliers or employees.
Independent Legal Advice: Does the employment contract provide the employee with reasonable time to obtain legal advice (at least 1 week)? An employee who obtains legal advice prior to signing an employment contract will find it more difficult to later argue he or she did not know or understand what was being signed.
Choice of Law: Employment laws vary from province to province, and country to country. Some jurisdictions have laws that are generally viewed as more favourable or beneficial to employees than employers, or vice versa. This part of the contract is an agreement between the parties that if they ever have a dispute that results in a lawsuit, it will be governed by this chosen jurisdiction, no matter where it is commenced. This may be particularly notable for employees who are required to work in a province or country that is different from where they normally reside.
Temporary Layoff: Under common law, an employer does not have an “automatic” right to lay off an employee on a temporary basis, unless the employment contract clearly allows for a temporary layoff. Otherwise, the employee put on a temporary layoff may have a claim of constructive dismissal against the employer. Therefore, employers who wish to maintain workforce flexibility will typically include a term in an employment contract that states that the employee may be laid off temporarily, and in accordance with the requirements of the employment standards law. In the world of COVID-19, this has become a significant issue, especially for employers who believe they are entitled to a temporary layoff as a result in the economic disruptions of stay-at-home orders.

It is important for both employers and employees to seek employment law advice prior to entering into any employment relationship, whether for short-term or indefinite duration. Quite often, the consequences of not doing so are more expensive than obtaining up-front guidance.

If you are an employee who would like to review a new employment contract, or an employer who wants to prepare employment contracts for your employees, contact Bune Law today for a consultation and review.

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