Spot the Dangers in Your Employment Agreement ... Limit Your Liability

Most employers use employment agreements or contracts when they bring new employees on board. The employee agreement is absolutely the most important document in the life-cycle of the employment relationship. An effective employment agreement can accurately frame the relationship, expectations, remuneration and limit exposure for both parties. However, an agreement that that is not well written or is lacking important details, can have an alternative damaging result for employers.

It is important that all employers are aware of the potential dangers that may be hidden in your employment agreement, as well as the necessary protections that may have been left out of your contract. Let us explore a few …

Ensure your Agreement Provides for Minimum Standards

Regardless of what an employee agrees to at hire, the minimum employment standards as set out in each jurisdiction, are just that … the minimum. You cannot ‘contract out’ an employee’ minimum entitlement nor can you rely on contract terms if the minimum rises above what is stated in a contract after it is signed. 

In certain circumstances, having terms included in your agreement that provide for a lesser entitlement than what is legislatively required can result in the specific term or even the entire agreement be declared void. This is especially true in the case of terminations clauses. Take the case of Wood v. Fred Deeley Imports Ltd https://goo.gl/K5yPMU . The employer had included a termination clause providing for 2 weeks pay for every completed or partial year of service. At first glance, all seems good. However, the employer failed to include wording to provide for continued benefits during the statutory notice period, a requirement in Ontario. And even though the company had voluntarily provided the employee with benefits over that period of time, the Court ruled the termination clause unenforceable.

Reliance on Non-Competition Clauses

Restrictive convents, such as non-competition clause, are an important consideration in most employment agreements. At the same time, the law has not looked favourably on these types of clauses and in turn, they are difficult to enforce. 

I encourage employers, when strategically working through a termination, to not reply heavily on the enforceability of non-competition clauses. There are very strict guidelines that must be followed so to make these clauses worth the paper they are printed on. In Elsley v. J.G. Collins Ins. Agencies  https://goo.gl/VL11kD the Supreme Court rules that non-competes will only be enforceable when the non-compete reasonably balances the interests of the public and the interests of contracting parties. In short, the terms and restrictions outlined in the non-compete must be reasonable or the courts will not enforce it.

When crafting a non-compete clause be sure to ensure the clause is:

• Certain and clear;
• Reasonable as to the prohibited activity. Be sure to restrict your required protection to proprietary rights, and not blanket restrictions on business activities or competition;
• Provide for a reasonable duration; and
• Provide for a reasonable restriction on the geographic area.

Concurrent Employment – Fixed Term Contracts

In my time working in government and with non-for profits, the use of term agreements was popular and necessary. These sectors rely heavily on varied funding sources which are not guaranteed and often unpredictable. It is common for employers to provide a one-year term contract, that ‘may be renewed based on available funding.’ It is also common that these term contracts are renewed many times over without a break in employment.

In a case where term contracts continually run back to back, the employment is generally ruled as concurrent. Take the case of Ceccol v. Ontario Gymnastics Federation   https://goo.gl/vNm1Q7 .

In this case the employee worked for nearly 16 years for the employer. The relationship was build on a continual series of one-year term contracts that had simply been renewed year after year. At termination, the employer relied on the end date of the last contract, believing notice was implied by said date. The Court ruled that the employment was "indefinite" in nature, as the employee had been there for 16 years without a break of employment of any kind. The employer would be responsible to pay a termination package worthy of a 16-year employee.

The lesson learned is term contracts cannot be used to mask the true nature of the employment relationship, especially if for the propose of evading the legislative obligations on the employer. It is always wise to consider the true context of the employment relationship and ensure the employment agreement reflects that.

HRprimed can help! Whether it be a customized employment agreement for your organization or expert HR On-Call support to assist you with the application and enforcement of terms … HRprimed makes Expert HR affordable.