For any business, having procedures in place to ensure cost-effective operations is obvious. However, one important area many companies overlook involves how they manage their workforce – specifically, having an employment contract in place.
The most important reason for employers to have an employment contract with employees is to have a written understanding of their respective duties, responsibilities and obligations to each other during the employment relationship.
What is an Employment Contract?
Typically, employment contracts are established either in writing (sometimes called an “employment agreement”). If not in writing, employers will often enter into a simple verbal agreement with their employees. However, without a written employment contract, both parties are often at a disadvantage when a conflict arises, such as a wrongful termination of employment. In those cases, the parties’ rights and responsibilities are governed by implied terms of employment under common law.
To avoid protracted legal (and costly) disputes, it is often prudent business practice for employers to have a written employment contract in place that sets out clearly the specific terms of the employment relationship.
Basic Rules and Considerations for Employment Contracts
For both employers and employees in Ontario workplaces, it is useful to keep in mind basic tips when it comes to employment contracts:
- they should be entered into before the employee starts their employment; otherwise, a court can find they are legally unenforceable if challenged by an employee in a wrongful dismissal claim after a termination of employment (leaving the employer liable for an expensive severance package)
- if introduced after an employee has already began working, the employee must be given “fresh consideration” for signing a new employment contract, such as an employee does not have a contract, such as a salary increase or signing bonus
- employment contracts should be prepared by an experienced employment law firm
- it is best practice to allow an employee sufficient time to review a n ew employment contract with an employment lawyer
- for an employer to limit its financial obligations when it comes to termination of employment, it is very important to ensure the termination clauses is legally valid and in compliance with the changing employment standards legislation and case decisions (see here for recent examples)
What’s Included in Employment Contracts
When employers consider implementing employment contracts with their employees, some of the key provisions should include:
- Compensation – this will detail what types of financial compensation the employee will receive for doing their job, including base salary, bonus pay, health benefits, pension contributions, vacation entitlements and so on.
- Bonus pay/profit-sharing – this can specify whether an employee is entitled to bonus pay or profit-sharing, whether it is entirely discretionary, eligibility (performance metrics), and stipulate whether bonus is payable only if the employee is employed at the time the benefit is stated to be payable.
- Restrictive post-termination covenants – although non-competition agreements for non-senior executives are illegal in Ontario, many employers ask employees to sign a non-solicitation clause to restrict a departing employee’s ability to “solicit” its employees or clients after their termination of employment (and other measures to protect the company’s interest, including intellectual property).
- Temporary Layoffs – this will provide an employer with a legal right of lay off employee without pay for a limited period of time, without facing a constructive dismissal claim by the employee. Based on recent court decision in Ontario employment law, it is important for both employees and employers to review whether the termination clauses in employment contracts are legally valid and enforceable.
- Termination provisions – perhaps one of the most important sections of an employment contract, a termination clause defines the circumstances where the employment relationship will terminate, including an employee’s decision to resign, or an employer’s discretion to terminate the employee “for cause” or “without cause” (and whether an employee is entitled to a financial severance package if they commence a wrongful dismissal claim).
In addition to employment contracts that are up-to-date when it comes to the Ontario Employment Standards Act, 2000 and court decisions, there are many other areas of law employers must address in written workplace policies, including occupational health and safety law when it comes to workplace harassment and human rights law when it comes to discrimination and disability accommodations. For all these workplace matters, it is always advisable for employers to proactively discuss their legal obligations with an experienced employment lawyer or have access to resources that update them on what they need to know when managing any sized workforce.
Our Toronto Employment Lawyer Can Help
If you are an employee who was recently terminated from your employment and want to know if you have a valid claim to challenge your employment contract as unenforceable and obtain a severance package following a wrongful dismissal, or if you are an employer who needs assistance or advice in responding to an employee claiming an employment contract is legally unenforceable and seeking a severance package, our experienced employment lawyer at Bune Law can help. Contact us by phone 647-822-5492 or fill out the contact form to the side. We would be happy to assist in your employment law matter as quickly as possible.
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