Canada: The Top 12 Employment Contract Terms

 

A well drafted and executed written employment contract can be useful in avoiding or resolving disputes during the employment relationship as well as when it ends – saving employers both time and money in either case.

Written Employment Contracts

Each employer has an employment contract with each employee – despite the fact that there is no supporting physical evidence of such (“nothing in writing”). There are many advantages to a well-drafted and carried out written employment contract, the ultimate advantage being notably fewer disputes and a significant reduction in the associated time and costs for the employer.

Readability & Comprehension

An employment contract that clearly sets out all the terms will help in fending off disputes later. And, since employment relationships are (or at least use to be) intended to last a long time, and human memories are fallible, a written employment contract ensures all the details, and occasionally complex arrangements are clearly and accurately recorded.

Legalese

In contrast to different “commercial” contracts, courts interpret employment contracts with an eye to protecting the employee. Consequently, they scrutinize employment contract terms intently, typically deciding any ambiguities in opposition the employer’s interest.

THE TOP 12 EMPLOYMENT CONTRACT TERMS ARE:

The standard form employment agreement is useful, but employers need to continually review it and, if required, customize it to suit particular circumstances. That said, there are some terms that essentially each employment contract needs to include. Here are the top 12 terms.

  1. Entire Agreement Clause. Another “legalese” clause that could make a difference in a dispute, this clause states that the written agreement is the entire agreement, and supersedes any earlier agreements – oral or written, drafts or final – the employer and employee might previously have made about the contract’s subject. This is in order to avoid both from claiming there are other contract terms in addition to those within the written contract.
  2. Fixed Term. If the employment contract is for a fixed term, make that clear, and specify the notice to which the employee is entitled upon early termination of the contract – or risk paying the remaining balance of the term.
  3. Independent Legal Advice. Include a clause in which the employee acknowledges he/she had the opportunity to seek independent legal advice on the contract. Be sure you give your employee time to consider the contract and to get that legal advice before signing.
  4. Non-Solicitation/Non-Compete. Employers are exposed to a financial loss while an ex-employee solicits his/her former employer’s clients and/or personnel. Employers can often protect their interests by way of imposing post-employment obligations on employees restricting or limiting their capacity to compete and/or to solicit clients and employees. However, public policy discourages such restraint of trade generally, and such obligations can affect the employee’s ability to earn a livelihood. Courts intently scrutinize them and refuse to enforce them unless the employer can prove they protect a valid proprietary interest of the organization, and are reasonable in terms of duration, geographic scope, and the nature of the activities prohibited. The key here is to apply clear and unambiguous language and not to invite more than is clearly necessary to protect the employer’s interests.
  5. Obsolescence Clause. An “obsolescence clause” is intended to make certain the employment agreement will continue to be relevant and enforceable no matter how long it lasts, and even if the employment relationship fundamentally changes between the date the contract is signed and the date the employment relationship ends.
  6. Permitted/Prohibited Activities. An employer does not automatically have cause to terminate a “moonlighting” employee without notice or pay-in-lieu of notice. Make it clear whether the employee is permitted to undertake other activities – for pay, or without pay (such as charitable work) – during his/her employment, or whether he/she must devote all the time to the job, and other activities (or certain ones) are either completely off-limits, or require the employer’s consent ahead of time.
  7. Probationary Period. Including a period of probation to decide whether the candidate is suitable for employment can be of value to the employer. A probationary clause states the employer can terminate the employee’s employment during a specified probationary period without notice or cause. However, it is important to note there that in order for it to be enforceable, the clause must comply with the minimum notice period under Employment Standards legislation.
  8. Protection of Intellectual Property, Confidentiality & Non-Disclosure. Intellectual property (IP) and confidential information, such as market research, financials, and proprietary client information, can be an employer’s biggest asset.
  9. Remedies for Breach of Confidentiality. The normal resolution from a court is monetary compensation. Employers should include a clause specifying the employee’s liability for monetary compensation for breach of his/her obligations, but the contract should also state that this is insufficient and that the employer and employee contemplated and accepted an injunction (a court order to stop doing something) and/or specific performance (a court order to do something) if the employee breached his/her confidentiality obligations.
  10. Resignation Notice Clause. Employers often require senior executives to give notice of resignation in order to deal with difficulty in recruiting or replacing a specialized skills position and ensure a smooth transition. The resignation notice is often considered a moral obligation and most employers do not act on such a clause – but it IS enforceable.
  11. Severability Clause. One of those “legalese” clauses that can save the day, states that any legally unenforceable terms or phrases of the employment contract are severed from the contract without affecting the enforceability of any of the other contract terms. For instance, it could operate to sever an unenforceable probationary clause – and leave an otherwise enforceable termination clause standing.
  12. Termination Clause. A “termination clause” is meant to displace an employee’s entitlement to “reasonable notice” of termination without cause through specifically setting out the employee’s notice entitlement. The law generally presumes that an employer can terminate a contract of “indefinite duration” (as opposed to one for a fixed term) without cause by giving the employee “reasonable notice” (Note: The employment standards legislation of some provinces requires cause for termination of employees with more than a specified length of service; seek out the guidelines for your province to ensure compliance). An enforceable termination clause – one that uses clear, unambiguous language expressly specifying some other period of notice and complies with employment standards legislation – offers both the employee and the employer certainty.

 

Supporting Article Research Sources: McInnes Cooper, Mondaq

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