Canada: Employment Contracts - Things To Think About In 2013

In keeping with the New Year's tradition of making resolutions, we suggest that employers, their counsel and human resources personnel add one more to their lists: a review of existing employment contracts. Over the past year or so, Ontario courts rendered a number of decisions that impact the enforceability of written employment agreements and provide good reason for employers to take a fresh look at such contracts to ensure that they are enforceable and in compliance with applicable laws.

The following is a brief summary of these decisions and their consequences. One case that has elicited quite a reaction within the employment law community is Wright v. The Young and Rubicam Group of Companies (which we discussed here), in which an Ontario court struck down a termination provision contained in an employment contract based on the fact that it did not comply with the requirement in the Employment Standards Act, 2000 (Ontario) to continue benefits throughout the statutory notice period. Even though the termination clause provided the employee with more notice than he was entitled to under the Act at the time of termination, the Court found that the fact that benefit continuance was not specifically referenced in the agreement, in addition to the fact that the agreement had the potential to provide for less than the minimum notice and severance pay entitlements contained in the Act at some point in the future, rendered the clause unenforceable. The employee walked away with twelve months' pay.

Another case that was decided in 2012, Bowes v. Goss Power Products, confirmed that an employee who has specific contractual termination entitlements is not required mitigate such entitlements upon termination without cause, unless the contract specifically contains a duty to mitigate. In Bowes, which is described in more detail in our previous post, a terminated employee received six months' pay in lieu of notice, despite finding work two weeks after he was terminated. The Court in Bowes made it clear that where a contract provides for an amount to be paid to the employee in lieu of notice upon termination without cause, the employee will receive that amount regardless of how long it takes him or her to find a new job, absent language to the contrary.

Other cases, including Martin v. ConCreate USL Ltd. Partnership which we discussed in a previous post, provides a reminder that restrictive covenants (such as non-competition and non-solicitation clauses) in employment agreements are viewed skeptically by our courts and are prima facie illegal and unenforceable. In order to be enforceable, such covenants must be clearly drafted, contain a reasonable (and limited) term and geographic scope and only go as far as necessary in order to protect the employer's legitimate business interests. It is also important when drafting restrictive covenants to ensure that the prohibited activity be clearly defined and not act as a barrier which would prevent the employee from working following his or her termination from employment.

Our Views

These cases are just a few examples of why having proper employment contracts in place is crucial. The law relating to employment contracts is fluid and employers would do well to review their contracts periodically to ensure they are up to date and enforceable. Specifically, employers should review their employment contracts and ask the following questions:

  • Is the contract clear and unambiguous?
  • Does the contract contain a provision which provides for the employee's entitlements upon termination without cause? Does the clause meet the minimum statutory requirements (including reference to notice, severance pay and benefits) pursuant to applicable employment standards legislation?
  • Was the contract signed before the employee commenced employment?
  • If the contract contains a non-solicitation or non-competition clause, has the clause been recently reviewed by or with the advice of legal counsel?

If you answered "no" to any of these questions, consider seeking advice on your current contracts and how to address any issues of concern.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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