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  February 20, 2015

Nothing Routine About Employment Contracts

Employment contracts are the foundation of workplace relationships, but employers and employees alike can be careless when they enter these agreements. Employees sometimes insist on written contracts without realizing that these documents limit their rights.

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Employment contracts are the foundation of workplace relationships, but employers and employees alike can be careless when they enter these agreements. Employees sometimes insist on written contracts without realizing that these documents limit their rights. Employers sometimes make mistakes too, such as downloading one of the many template contracts that circulate on the Internet. Interpreting employment contracts is a complex area of law. That’s why it’s dangerous to jot the company name, salary and termination notice requirements into blank spaces in a template contract and ask a new hire to sign on the dotted line.

Here are a few things to keep in mind when creating a contract of employment:

1. Statutory minimums
The Employment Standards Act provides the statutory minimum level of benefits that an employee is entitled to receive. These benefits are considered to be mandatory terms of employment and include such things as minimum wage and the obligation to provide overtime, statutory holiday pay, and pregnancy and parental leaves. The parties cannot agree to contract out of these statutory benefits. Where they attempt to contract out of such statutory rights, judges have ruled that those provisions are void. An example of this is where an employee enters into an employment contract that includes a termination notice provision that provides for less than what is required under the Employment Standards Act.

2. Limiting common law entitlements
An employment contract can be used to protect an employer from various liabilities that may arise in the absence of a contract. For example, reasonable notice of termination is a common law benefit that may be limited by the language of an employment contract. Where a contract does not exist, an employee’s entitlement to “reasonable notice” is left to the court’s discretion.

In addition to statutory notice requirements, an employee may be owed a reasonable amount of notice at common law in the absence of a binding employment contract stating otherwise. In BC, reasonable notice is based on the following four key factors:

  • length of service;
  • the age of the employee;
  • the type of position held, including salary, and whether supervisory responsibilities are present; and
  • the availability of similar employment in the job market at the time of termination.

Common law notice periods are typically longer than those required by statute. However, employers can contract with employees to provide less notice than the employee would receive at common law.

An employment contract can also include various restrictive covenants which, if carefully drafted and reasonable in the circumstances, can protect confidential information, lawfully limit a former employee’s ability to solicit his/her ex-employer’s clients or employees, and/or otherwise restrict the former employee’s ability to compete with his/her ex-employer within a defined geographical region and for a specified period after the termination of his/her employment.

3. Clarity is key
The terms and conditions of employment as outlined in the employment contract must be as clear as possible. It is important for employers to remember that ambiguous terms will likely be interpreted in favour of the employee. This is because judges tend to view the employee as being at a disadvantaged position when it comes to negotiating salary, benefits and obligations.

4. Managers are agents of the employer
Corporate officers or managers are considered to be agents of the employer. Any action that a manager takes in forming a contract of employment with an employee will be interpreted as the action of the employer. This principle was highlighted in a 2005 decision by the B.C. Supreme Court in which a middle manager was provided the authority from his general manager to renegotiate a subordinate’s contract. The employee in that case had his manager agree to delete the termination provisions from his contract. The general manager argued during the lawsuit that even though he had signed the renegotiated contract, he did not OK any changes. The Judge determined it was no answer “for the General Manager to say that he was careless in not reading the document and that if he had read it he would have objected” and, therefore, dismissed the employer’s argument that the termination clause should still apply. This decision shows that the actions taken by a manager will be interpreted as those of the corporation where the manager is acting within his or her authority provided by the employer.

5. Regular review
Employers should review the employment contracts that they have formed with their employees on a consistent basis to ensure that they are keeping current on any legislative revisions and that the contracts accurately reflect the work that employees are performing.

6. Additional benefits
An employee may be entitled to certain benefits outside of those included in the formal contract of employment. Employers who grant employees new perks may find those perks become read in as part of employees’ contracts. Attempting to stop those benefits without employee agreement could then be interpreted as a breach of the contract. Examples of types of benefits that may fall under this category include automobile allowances or work from home provisions.

7. Providing time for consideration
Where an employee has been presented with an initial contract of employment or where a modification of an existing contract has been proposed, the employer must provide the employee with a reasonable amount of time to review and consider the terms of the contract and to obtain independent legal advice if the employee so chooses. Where an employer pressures an employee to enter into or modify a contract or does not provide enough time for consideration of the terms, the contract may be considered void. Importantly, an employer should always ensure that the contract of employment is signed by the new employee before that employee commences work – remember, a contract signed a day or two (or more) after the employee has already commenced work might not be enforceable.

These tips provide only the basic principles for employers to keep in mind when entering into contracts of employment. Employment contracts can become very complex and even a simple contract can be deemed void if small mistakes are not corrected before it is executed. So, unless you are very confident that the document is contractually sound, it is usually a good idea to have legal counsel review the final draft before it is presented to the new hire.

Information provided by Ryan Anderson, an employment lawyer with Mathews Dinsdale & Clark LLP. The information provided in this article is necessarily of a general nature and must not be regarded as legal advice. For more information about Mathews Dinsdale & Clark LLP, please visit mathewsdinsdale.com.

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