I Got a New Employment Contract – What Should I Know?
There is perhaps no more exciting time than being offered a new employment contract to go along with that new job offer. As an employment lawyer, I have often wondered why employees sign a new employment contract without reviewing the details with an employment lawyer. In many respects, the answer is rather obvious: most people do not want to lose the opportunity to start a new job (particularly one that is in their career prospects). However, as the old adage goes, “the devil is in the details.”
It is well known that there is rarely an equality in bargaining between an employer and employee when it comes to employment contracts. In the vast majority of cases, employment contracts are one-sided and benefit the employer. As long as the parties turn their minds to protecting their own interests, the employment contract should accurately reflect the bargain they have struck. Unfortunately, in employment law, seldom is the case that a true “bargain” is reached when negotiating an employment contract between workers and their employers.
In this blog, we cover a key term that is typically included in employment contracts: termination clause. As always, it is crucial for employees to review employment contracts with an experienced employment lawyer before they decide to sign.
Termination of Employment Clauses
A termination clause specifies the rights and obligations of the parties in the event that one of them decides to terminate the employment contract. This section cuts both ways – it will state circumstances where either the employee or employer can bring the employment relationship (and employment contract) to an end:
- an employee can decide to terminate the employment contract (called a “resignation”)
- circumstances where the employer decides to terminate the employment contract, including:
- “termination for just cause” – justification for employment termination without notice based on an employee’s misconduct
- “termination without cause” – employer’s right to terminate employment without providing a reason, as long as it is not based on discrimination and they provide the employee with prior reasonable notice (i.e., a period of time an employee should be given between notification of dismissal and end of employment), or pay in lieu of notice (i.e., payment as a substitute for receiving adequate notice of termination where an employee is dismissed without just cause, often called a financial ‘severance package’).
A wise employee should always review and seek the advice of an experienced employment lawyer to weigh the pros and cons of signing an employment contract. But signing a new employment contracts is not always meant for new employees. Far too often, I have seen employees who have worked for the same employer for 10 years, 20 years, 30 years (and more!) asked to sign a new employment contract. The question is why?
The answer is simple: employers are attempting to minimize the amount of severance pay (severance package) they have to provide the employee if they decide to terminate their employment. In fact, recent, I have seen long-term employees asked to sign a new employment contract with a termination of employment clause that severely limits the amount of termination pay and severance pay upon termination to only those bare minimums required by the Ontario Employment Standards act, 2000. The consequence?
By signing the employment contract, the employee has given up significant legal protections available to them under Ontario employment law rules. As a result, the most contentious clause in an employment contract is a termination clause since it relates to notice of termination. Without a termination clause, an employee who is dismissed without just cause (justification based on misconduct) is entitled to “reasonable notice” of termination (that is, working notice or pay in lieu of reasonable notice) under common law.
Depending on the circumstances, reasonable notice may be very lengthy – as much as a month (or more) per year of service. This means that if you, as an employer, fail to provide reasonable notice, you may be required to pay a terminated employee an amount equal to the employee’s full compensation they would have earned during this period of time. Similarly, it means that if you, as an employee, are terminated from your employment without cause, you may be entitled to a significantly more generous financial compensation as part of a severance package.
Typically, an employee’s severance package (or damages for wrongful dismissal) are far greater than the bare minimums an employment contract would provide, as they take into account the employee’s:
- age
- years of service (length of employment or seniority)
- salary
- position
- educational background, skills, training and overall work experience
- availability of similar employment
- other relevant factors (disability, pregnancy, etc.)
With that in mind, it is no wonder that employers ask employees to sign new employment contracts. As an employer, if you address what will happen upon termination at the beginning of the employment relationship while you and the employee are on good terms, you may be able to reduce the costs and uncertainty of relying on a court to determine what constitutes reasonable notice (or the appropriate severance package) if the employee sues for wrongful dismissal (or constructive dismissal).
Example of How a Termination Clause Impacts an Employee’s Severance Package for Wrongful Dismissal
In one court case, an employment contract included a termination clause that limited the employee’s entitlement on termination to the minimum amount of notice required under the Ontario Employment Standards Act, 2000. The court found that because the termination clause was enforceable and clear enough to rebut the employee’s common law presumption of entitlement to reasonable notice, the employee’s entitlement was limited to the minimum amount, which was $2,477. Crucially, if there was no employment contract with an enforceable termination clause, the employee would have been entitled to at least 3 months of compensation ($32,000) in lieu of reasonable notice under common law.
Call Toronto Employment Lawyer Now
It is important for an employee (or an employee) to obtain a legal consultation before taking any action that could affect the situation at workplace. Whether you are an employer or employee, it is important to negotiate a termination clause and draft the term clearly in a written employment contract. Our employment lawyer has experience advocating for both employers and employees. If you are looking for an employment lawyer or wrongful dismissal lawyer in Ontario, please call 647-822-5492 for a case evaluation with an experienced employment lawyer.
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