THE EMPLOYERS' EDGE
Why Every Employer Should Use Employment Agreements
As trusted advisors to employers, we are often called upon when a non-union employee is about to be dismissed without cause to give advice on what the period of reasonable notice or pay in lieu of notice obligations are in relation to that dismissal. Absent an employment agreement, non-unionized employees are entitled to “common law reasonable notice” if they are being dismissed without legal cause. Anyone who has gone through this exercise appreciates that there are no fixed rules and “reasonable notice” will depend on a number of factors including length of service, age, position held, as well as other factors that could impact the employee’s ability to find alternate employment. In many cases, employers mistakenly believe that their obligations are limited to the minimum statutory notice and severance requirements set out in provincial or federal employment standards legislation. Too often, employers are shocked to learn that their liability could be as much as one month’s salary for every year of service rather than one week’s salary as anticipated. Alternatively, many employers believe that if an employee has been employed for less than three months, they are considered probationary and employment can be terminated without notice. They are understandably frustrated when they learn that unless the employee executed an employment agreement that provides for a probation period or there is a communicated employment policy setting out a probation period, these employees are entitled to the same notice as any other employee within the organization (and in some cases significantly more if they are senior, older employees).
There is little doubt among those who practice in this area that a well drafted employment agreement is one of, if not the most, valuable investments an employer can make in reducing liability at the point of dismissal. Whether it is a 10 page formal employment agreement or a two page hiring letter, employment contracts can create certainty and flexibility for employers at the point of dismissal. An enforceable employment agreement can mandate a three month probation period where notice is not required if the employee proves to be “unsuitable”, can preserve the employer’s right to temporarily lay-off without triggering a constructive dismissal and can set out exactly what an employee is entitled to in terms of notice, benefit continuation and the continuation of other “perks” (car allowance, bonuses, RRSP contributions and the like) when the employee is dismissed without cause.
The key to using an employment agreement effectively, however, is ensuring that the agreement is legally enforceable. The following tips should be kept in mind when making an employment agreement a condition of employment for a new hire:
If the termination provision provides only for the minimum statutory entitlements, the contract must clearly communicate that the employee is not entitled to any additional payments. Without this language, courts have held that the contract is ambiguous and permits additional common law payments/entitlements.
Employees must be provided with the employment agreement prior to starting employment in order to ensure there is proper legal consideration for the agreement. Employment agreements provided on the first day of employment or after employment are often held to be unenforceable by courts on the basis that the employer has not given anything to the employee in exchange for the employment agreement once employment commences.
Related to this issue is the obligation to give the employee an opportunity to seek independent legal advice (“ILA”) prior to executing the agreement. An employment agreement provided to an employee on the first day of work for execution will likely not be enforceable because the employee has been deprived of his/her right to seek ILA. While employers are not required to ensure an employee gets legal advice, they must provide the employee with enough time to do so.
Employers must refrain from making representations that the termination or probation provisions of the contract will not be enforced. In an attempt to secure a candidate, employers will often tell employees “not to worry” about the termination provisions. These representations will void those provisions if an employer then seeks to enforce the contract terms down the road after the work relationship has soured and the employee has been dismissed.
The Employer must make sure that the employee has the ability to understand the terms of the employment agreement. If, for example, English is not the employee’s first language and it is clear that the ability to read and understand English is an issue, an employer should consider having the agreement translated into the employee’s first language.
An employment agreement that does not comply with minimum statutory rights and obligations are not enforceable. For example, a contract that provides for two weeks’ notice for dismissal without cause will not be compliant with most provincial employment standards legislation once an employee has been employed for more than two years. An agreement that permits a dismissal for cause if an employee is absent for any reason for more than 7 days will not comply with provincial and federal human rights legislation and the employer’s obligation to accommodate disabilities or other protected grounds.
It is strongly recommended that legal advice be obtained before using an employment agreement template as changes in the law and employment legislation can impact the enforceability of hiring letters and contracts. The lawyers at CCPartners are experienced in the drafting of enforceable employment agreements that comply with legislative obligations and court decisions.
Please Note: This blog has been prepared as an informational service for our clients and other interested parties. It is not intended to constitute legal advice, a complete statement of the law or opinion on any subject. Although we endeavour to ensure the accuracy of the content, no one should act upon the information provided without a thorough examination of the law after the facts of a specific situation are fully considered.