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COLOURS OF EMPLOYMENT LAW
Is your employment CONTRACT worth the paper it’s written on?
BY STUART RUDNER, LEADING EMPLOYMENT LAWYER AND MEDIATOR FOUNDER, RUDNER LAW
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Do your contracts give you the right to temporarily lay people off? If not, you risk a constructive dismissal claim if you impose temporary layoffs, even during a pandemic. Do you use contracts for every employee, with a termination clause that has been approved by an Employment Lawyer recently? If not, it may not be worth the paper it is printed on. And if you have employees sign their contracts on their first day of work, it is unlikely to be enforceable.
Employment laws are designed to protect the rights of employees. You may not realize it, but all of your employees have contracts; however, unless there is one in writing, they have a verbal contract comprised of the terms that you discussed, such as position and compensation, and a bunch of other terms that will be implied by law to protect the employee.
Employment contracts are the best way to strengthen your legal position as an employer. When done property, they can help reduce your labour costs and give you more flexibility.
The problem is that most employers don’t take the time to implement contracts strategically, because they don’t think of their employment relationships as legal relationships. We are usually asked to help our
clients implement strong contracts after they have suffered the consequences of failing to do so in the past. That can be a costly lesson.
In recent years, there have been hundreds of court challenges to contracts of employment, and in many cases, the contracts have been found to be null and void. Even in the past few months, we have seen several significant judicial decisions assessing termination clauses, with the end result that many current termination clauses are probably not enforceable.
The most common mistake is to have the employee sign the contract at the time they commence their employment, or even later on. At that time, there is already a verbal agreement in place and it is tricky to replace it with a new one that is drafted for the benefit of the employer.
The other common mistake is drafting the termination clause in a way that is either ambiguous or creates the potential, albeit narrow, to breach the employment standards legislation. For example, you may not provide benefits currently, but if your termination clause does not say that any benefits that the employee receives at the time of termination will continue, it will be offside.
In a very recent case, the Ontario Court of Appeal held that if you dismiss an employee without cause, and your termination without cause provision in the Employment Contract is perfectly enforceable, you may still be out of luck because your termination for cause provision is void – even though you are not dismissing them for cause. As a result, you may be liable for exponentially more severance than you think.
And although you may think that your severability clause will protect you, the court held that severability clauses cannot be used to “save” illegal clauses in a contract.
What about existing employees?
Once our clients understand that all new hires should sign a contract, they ask what to do about existing employees that do not have a contract. While some are tempted to simply put a new contract in front of them and tell them to sign, we always remind our clients that the test is not whether or not the employee signs, it is whether the contract will be enforceable if and when it is challenged.
We work with our clients to ensure that it will be, which involves providing either consideration or notice (which can be extensive). Promotions and salary increases are great opportunities to have employees sign new contracts.
The Bottom Line
Employers can reduce their labour costs, maximize their rights, and even reduce legal fees by avoiding uncertainty, all through the use of strategic contracts. This can save you tens of thousands of dollars, usually at a time when you need to cut your costs. It can also give you more rights than you will otherwise have. A simple example: a dismissal without an enforceable termination clause could require two years of severance. With a termination clause, it could be as little as eight weeks.
