Have you ever started a new job and been provided with a contract or agreement on your first day that your new employer expects you to sign? If so, you may be wondering: What is this agreement? Are there any benefits or consequences to signing this Agreement? What effect might this have on me long term? This blog post will provide you with information about what an employment agreement is, and also how they can be important to protect the rights of both the employer and the employee. Please note that this blog is not intended to provide you with legal advice of any kind, and we always recommend that you speak with a lawyer about any employment-related questions or issues. Though this blog post is intended to be informative in nature, the results of any given case can never be guaranteed and are highly fact-dependent.
What is an Employment Contract?
An employment contract is an official agreement that an employer provides to an employee, outlining the terms of the proposed employment. This document will typically be given at the start of a person’s employment to ensure that proper consideration is provided. Consideration, as a legal term, means that in order for a contract to be valid, it must include each party obtaining something of value from the agreement. Essentially, this means that a promise is given for a promise. For example, the most common form of consideration given in the employment context, is when an employee agrees to work for that employer, and in exchange, the employer promises financial compensation. So, if an employer gives an agreement to an employee later on into their employment, they may choose to do-so alongside a financial bonus, promotion, etc., to ensure that proper consideration is given to each party.
An employment agreement will often contain a variety of different terms and conditions. These conditions can include: probation periods, specified termination procedures, information regarding benefit plans, confidentiality and non-solicitation expectations, compensation and job descriptions.
There are two common types of employment agreements:
First, is the common ‘indefinite’ contract. This type of contract has no specific end date and can be terminated in accordance with one of the termination provisions in the Agreement, whether that be with-cause or without-cause. Termination without cause will require that the employer provide a working notice period or pay in lieu of such notice. If termination is with-cause then this notice or pay is not likely required.
Next, is a fixed-term contract. A fixed-term contract has a pre-determined termination date. If an employee is terminated without cause then the employer may still be required to provide the employee with a certain amount of notice, or in some circumstances, it may be required to compensate the employee for the remainder of the contract.
Employment Standards Act
The Employment Standards Act (“ESA”) is a piece of Ontario legislation that sets out the minimum rights and entitlements for employees in the workplace. The Ontario Court of Appeal recently held, in the landmark case of Waksdale v. Swegon, that if a termination clause in an employment agreement falls below the minimum statutory entitlements as provided for in the ESA, it will likely be rendered void. This means that rather than the termination being governed by the ESA, the employee will likely be entitled to reasonable notice under the common law. Additionally, if there is no employment agreement at all, the employee will also likely be entitled to reasonable notice under the common law.
Examples of statutory minimum entitlements under the ESA are standard minimum wages, vacation/sick days and termination notice.
The Common Law
If it is established that the termination clause in an employee’s employment agreement falls below the minimum threshold as set out in the ESA, then the employee may be entitled to the more generous quantums of termination notice as set out in the common law, such as 2-4 weeks of pay in lieu of notice or sometimes even more, depending on the circumstances of the case.
In determining where an employee falls within this spectrum, the Judge will often look at a number of factors. The case of Bardal v Globe and Mail establishes many of the factors in which determines an employee’s termination notice entitlement under the common law. These factors include: the length of service, age, salary and availability of similar employment. The courts will also likely look at the characteristics of the position held by the employee, for example: if they were a manager then they may be entitled to more notice. Essentially, the court will try and determine how easy or difficult it will be for this particular person to go out and get similar, suitable employment, meaning a job of similar caliber, in determining how much notice is reasonable in the circumstances. As a general rule, the common law is much more generous than the ESA. Often times, both the severance, and reasonable notice entitlements, will be higher than what is provided for in the ESA.
As you can see, having a poorly-worded employment agreement can have tremendous consequences. That is why we recommend seeking legal advice from a qualified employment lawyer any time you are having an employment agreement drafted, or as an employee, having a lawyer review your employment agreement or termination package. It is understandably tempting to take the seemingly more cost-effective route of drafting your own employment agreement. As you can see though, if any clauses are inconsistent with the current laws, significant costs and complications may arise down the line.
Written by Nicole Murphy and Wyatt Shipley