An employment agreement is essential for employers and employees. Some employers and employees believe that an oral or verbal agreement is enough, or that current legislation will help them if the relationship turns sour. Although an oral or verbal employment agreement is valid in law, there are many benefits to a written employment contract and we always recommend that a written employment contract be entered into to protect the employer.
Without a written employment agreement in place, parties may rely on implied contractual terms. For example, it is an implied term of every employer-employee relationship that the employer will provide the employee with reasonable notice in the event of a termination, that the employer has the option to terminate the employee’s position if there is just cause, and the employee will perform their duties with reasonable skill and diligence.
A properly drafted employment contract can reduce the number of misunderstandings between the parties and amend implied terms under many circumstances. Many employer-employee relationship issues stem from a failure to clearly document each parties’ expectations. The importance of clarity cannot be overemphasized. If a clause is ambiguous, a court will construe the clause in favour of the party that did not draft it.
If there is no written employment contract, then a court will use different tools to figure out the various oral and verbal agreements between the employer and employee. A paystub can be used as evidence of salary. Approved vacation time may serve as evidence of the number of vacation days. If every other employee has a health plan, then a court may infer that the employee did as well. In addition to the terms agreed upon, the oral employment relationship is governed by statutory terms and implied common law terms.
Employers are well served by having a properly drafted employment contract in place. Employers may alter implied contractual terms and offer added protection to the business. For example, employers may wish to add a non-competition clause in some agreements, as well as a tailored confidentiality clause. Employers may also wish to rely on the statutory minimum notice periods, which are typically shorter than reasonable notice at common law.
Ideally, an employment contract is signed before the employee’s first day of work. If the employee has worked for the employer for some time, it will be important to provide consideration in return for entering into the employment contract. In contract law, each party must give and receive something (“consideration”) in order to make a binding agreement. There is an old adage in contract law that states, “old consideration is no consideration”, which holds true in this scenario. An employer may wish to grant the employee a promotion, increase in salary, a signing bonus, a new bonus plan, or a new stock option agreement if the employment agreement is being signed while the employee is already working.
Employment contracts must be updated. Some courts have found employment contracts invalid if they do not state the employee’s current position, geographic location, material responsibilities or other current realities. An alternate solution would be to input a clause that states the agreement is to govern notwithstanding changes to position, compensation, or otherwise.
Employers must ensure the employee has enough time to properly review the employment contract, and seek advice from a professional if they wish. If there is evidence of duress or coercion, the contract could be struck down. These factors may be achieved if the employee applies pressure on the employee to sign the agreement quickly.
The importance of a properly drafted employment contract cannot be overemphasized. If you need help drafting or reviewing an employment contract, contact a legal professional.
Conduct Law is an Ottawa based business law firm with locations in Ottawa, Barrhaven and Kanata. Our professionals are experienced business lawyers who can help with employment contracts, commercial real estate, liens, incorporations, trademarking or implementing corporate structures that manage tax obligations, whether as a corporation, partnership, family trust, testamentary trust, or any other type of legal entity.
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