THE EMPLOYERS' EDGE
Back to Basics: The Importance of Employment Contracts
As employers begin to turn their minds to reopening, it is an ideal time to revisit some basics of employment law best practices. A natural place to start is the importance of contracts – an employer’s best friend!
Enforceable termination clauses in valid employment agreements are a key tool of employers in limiting liability to employees both during employment, for example in the event of a temporary layoff, and at the time of dismissal. The importance of a properly drafted employment contract was made readily apparent by the COVID-19 crisis. As businesses were forced to shut their doors in the name of public health, many employers grappled and continue to grapple with implications of putting employees on a temporary layoff. Many of our regular readers may have seen dire warning from local news sources claiming that employers are “breaking the law” when laying off employees. While perhaps overstated, there is a risk of triggering a constructive dismissal claim by placing an employee on temporary layoff, even if in accordance with the Employment Standards Act, 2000, if there is no contractual entitlement to same.
Most importantly, we regularly and strongly recommend that employers implement contracts with enforceable termination clauses. This can be readily addressed in the case of new employees – simply seek out legal advice from experts in employment law and make sure your contract meets the rigorous requirements mandated by the courts before you offer employment to anyone. However, for employers who may be considering implementing contracts for existing employees there are additional factors to consider.
One common misstep by employers is simply drafting a new contract and presenting it to new employees. Unfortunately, these new agreements are unenforceable as they lack proper legal consideration. In a new employment relationship the legal consideration necessary to create a binding agreement is already present – the employer offering employment and getting a signed agreement reducing its liability in return. Similarly, employees must “give” something to existing employees to “get” an enforceable employment contract. That said, it is certainly possible to move existing employees onto employment agreements in the event that they did not sign one when they were initially hired or the contract they did sign proves to be unenforceable.
Changes to an Employee’s Terms and Conditions of Employment
Where an employer promotes an employee, or moves them from part-time to full-time or from contract to permanent status, the change in employment status can be “fresh consideration” for an employment contract with enforceable termination provisions. Employers must be careful to present the employment agreement as a condition of the promotion or change in status, must provide the contract to the employee before the change takes place, and the employee must be given enough time to seek independent legal advice if they so choose. Other changes such as the introduction of a group benefit plan, pension plan or non-discretionary bonus plan can also provide the necessary consideration for a new employment agreement.
In certain circumstances, providing employees with signing bonuses in return for new termination language in their agreements can provide the fresh consideration necessary to create an enforceable agreement. Employers need to be clear that the signing bonus is conditional on agreeing to the new terms and make sure the transaction is properly documented. Once again, employees should be given time to consider their options and seek independent legal advice on the terms of the new termination language.
Giving Notice of the New Terms
In our opinion, the best way to implement or amend employment contracts for existing employees is to give proper notice of the change to the terms and conditions of employment. This can be done on an individual basis by giving common law reasonable notice of the change, or it can be done with one effective date for all the employees based on the employee with the longest service in your organization. For example, if you have three employees with 10, 12 and 14 years’ service, you would take the employee with the most service (14 years), determine their common law reasonable notice entitlement and then advise all of the employees that the new agreements will become effective on that date. Effective communication is critical if providing working notice of a change in contractual terms, including communication of the repercussions of not agreeing to the changes (termination of employment at the end of the notice period).
CCPartners has extensive experience advising employers on how to create enforceable employment agreements for new and existing employees. Click here for a list of lawyers who can help you determine if your contracts are enforceable and if not, how to ensure they are in the future.
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