What is an Employment Contract?
A key feature of Ontario workplaces is an employment contract. When hiring new workers, employers can use employment contracts to set out the terms of the employment relationship, as well as clarify and establish the features of the employment relationship. For instance, the employment contract may outline the legal entitlements, obligations and restrictions of both the employer and employee.
A common misconception of employees is that having an employment contract is beneficial because it safeguards their legal rights and expectations. However, generally speaking, employment contracts favour employers’ interests far more than they protect an employee’s rights. In fact, they are meant to restrict an employee’s legal rights and entitlements and limiting the employer’s obligations at various points of the employment relationship, such as severance package upon termination of employment.
Whether you are an an employer or employee, it is important to understand the implications of signing a properly drafted employment contract. While an employment contract can be oral (verbal), it is prudent for employers to insist on a written employment contract that is signed by an employee before they start their first day on the job.
What’s Included in an Employment Contract
A typical employment contract will common terms in the following areas:
- Job title, duties and responsibilities
- Compensation (salary, benefits, pension, bonus, etc.)
- Permission to make future changes to an employee’s employment contract, including to compensation, duties, job title and geographic work location (and restrictions on an employee’s ability to refuse the changes and challenge the employer’s conduct by claiming constructive dismissal)
- Termination of employment clause setting out the amount of reasonable notice of termination that the employer is required to provide the employee when it decides to end the employment relationship (severance package)
- Restrictive covenants preventing a senior employee from setting up business in competition with the former employer, or by joining a competing company, either during or after the period of employment (non-competition covenant)
- Prohibiting an employee from soliciting of the employer’s staff or clients, either during or after the period of employment (non-solicitation covenant)
- Confidentiality provision protecting an employer’s business information and property by prohibiting the employee from discussing, disclosing or misusing the employer’s confidential information.
What’s Required to Legally Amend an Employment Contract
Once signed, an employer is generally not permitted to make significant changes to an employment contract. For instance, there is usually a clause that requires both parties to agree to make any changes to the language of the employment contract. ‘
Additionally, under common law, an employer must provide an employee with sufficient reasonable notice before unilaterally making a unilateral change to an employee’s contract, including to significantly reduce compensation, impose a demotion or substantially alters another fundamental aspect of the employee’s job (e.g., work location, work hours, duties and responsibilities). Otherwise, an employer who does not provide an employee with sufficient prior reasonable notice of the change to the employment contract (or pay in lieu), an employee may be able to claim a constructive dismissal and obtain compensation for wrongful dismissal (financial severance package compensation).
In order to make a significant change to an employee’s contract, an employer must receive the employee’s written consent to the changes. Just as important, the employer must provide the employee with valuable consideration in order to make the employment contract changes legally valid and enforceable.
The word “consideration” means something of value or benefit to the employee the employer did not previously provide, such as a promotion, signing bonus, enhanced benefits package, more vacation time, or salary increase.
However, an employee does not have to accept the changes to an employment contract imposed by an employer. In fact, if your employee decides to reject proposed changes to their employment contract (and are unwilling to negotiate the terms of a new employment contract), an employer generally has two options:
- Employer may terminate the employee’s employment without cause by providing appropriate notice or pay in lieu thereof and then offer re-employment to the same employee on the new terms (severance package)
- Employer may accept that there will not be an agreement to the proposed changes and continue the employment relationship with previously existing existing terms.
Employment Contract Lawyer
If you are an employer or employee, it is always crucial to review any proposed changes to an employment contract with an experienced employment lawyer. A consultation with an employment lawyer will help you avoid the financial costs of a wrongful dismissal or constructive dismissal claim, while navigating any obstacle to protect the employment relationship. Bune Law, employment law firm in Toronto, can help you implement fair and enforceable changes to employment contracts. To book your consultation, call 647-822-5492.
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