A well drafted and implemented written employment contract can be instrumental to both avoiding or resolving disputes both during the employment relationship and when it ends – saving the employer time and money in either case.
WRITTEN EMPLOYMENT CONTRACTS Every employer has an employment contract with every employee – even when there's "nothing in writing". The issue is often, however, ascertaining its terms. There are several benefits to a well-drafted and implemented written employment contract, the ultimate benefit being fewer disputes and a reduction in the associated time and cost to the employer.
Clarity. A well-drafted written employment contract that sets out all of the terms and does so clearly will help avoid disputes later. And since employment relationships are often intended to last a long time, and human memories are fallible, a written employment contract ensures all of the details and sometimes complicated arrangements are recorded.
Legislative Compliance. The employment standards legislation of some provinces requires a written document; for example, the NL Labour Standards Act requires an "employment statement" setting out terms and conditions of employment required by statute. Furthermore, while it's not permissible to contract out of all requirements of employment-related legislation, it is possible to contract out of some; a written contract makes it far simpler to prove the employer did so.
"Legalese". Unlike other "commercial" contracts, courts interpret employment contracts to protect employees. So they scrutinize employment contract terms closely, usually deciding any ambiguities against the employer's interest. There are technicalities associated with many employment contract terms, and it's important to get the "legalese" and wording right so they will meet the legal tests for a court to enforce them. Properly implementing the employment contract is just as important as getting the terms right. The employment terms must be set at the time of hiring/start of employment: an employer can't unilaterally impose new employment conditions that fundamentally change the employment relationship during the employment unless it gives the employee prior notice or "consideration": something of new value in exchange for the obligations in the contract.
TOP 12 EMPLOYMENT CONTRACT TERMS A standard form employment agreement is useful, but the employer should always review it and, if required, customize it to the circumstances. That said, there are some terms that just about every employment contract should include. Here are the top 12.
- Termination Clause.
A "termination clause" is intended to displace an
employee's entitlement to "reasonable notice" upon
termination without cause by specifically setting out the
employee's notice entitlement. The law generally presumes that
an employer can terminate a contract of "indefinite
duration" (as opposed to one for a fixed period) without cause
by giving the employee "reasonable notice" (although the
employment standards legislation of some provinces requires cause
for termination of employees with more than a specified length of
service; for example, in NS an employer can only terminate an
employee with 10 or more years in specific situations). But the
meaning of "reasonable notice" is uncertain because
it's individually assessed at time of termination. A number of
factors are used to assess the reasonableness of notice, including
the nature of the position, length of service, age, ability to find
comparable employment and circumstances surrounding the hiring.
Employers can rebut the "reasonable notice" presumption,
but it's a difficult task. An enforceable termination clause
– one that uses clear, unambiguous language expressly
specifying some other period of notice and complies with employment
standards legislation – gives both the employee and the
- Obsolescence Clause.
An "obsolescence clause" is intended to ensure the
employment agreement will remain applicable and enforceable no
matter how long it lasts, and even if the employment relationship
fundamentally changes between the date the contract is signed and
the date the employment relationship ends.
Clause. One of those "legalese" clauses
that can save the day, it states that any legally unenforceable
terms of the contract are severed from the contract without
affecting the enforceability of any of the other contract terms.
For example, it could operate to sever an unenforceable
probationary clause – and leave an otherwise enforceable
termination clause standing. To read about an actual case in which
a severability clause played a key role, read McInnes Cooper's Legal Alert: Court Confirms
Employment Contract Is Enforceable – 3 Key Lessons For
- Non-Solicitation &/or
Non-Competition. Employers are exposed to financial loss
when an ex-employee solicits her former employer's customers
and/or employees. Employers can often protect their interests by
imposing post-employment obligations on employees limiting their
ability to compete and/or to solicit customers and employees. But
public policy discourages such restraint of trade generally, and
such obligations can affect the employee's ability to earn a
livelihood. So courts closely scrutinize them and refuse to enforce
them unless the employer can prove they protect a legitimate
proprietary interest of the employer, and are reasonable in terms
of duration, geographic scope and the nature of the activities
prohibited. The key is to use clear and unambiguous language and
not to ask for more than is really necessary to protect the
- Probationary Period.
Including a period of probation to determine whether the candidate
is suitable for employment can be of value to the employer. A
probationary clause states the employer can terminate the
employee's employment during a specified probationary period
without notice or cause – but to be enforceable, the clause
must comply with the minimum notice period under employment
- Protection of Intellectual
Property, Confidentiality & Non-Disclosure.
Intellectual property (IP) and confidential information, like
market research, financials and customer information, can be an
employer's biggest asset. The employment agreement should
protect them and require the employee to keep them confidential.
Address who owns any IP the employee develops and define what it
covers and what is confidential; require the employee to
acknowledge how she will or did gain it and continue the obligation
- Fixed Term. If the
employment contract is for a fixed term, make that clear and
specify the notice to which the employee is entitled upon early
termination of the contract – or risk paying the remaining
balance of the term.
- Permitted / Prohibited
Activities. An employer does not automatically have cause
to terminate a "moonlighting" employee without notice or
pay-in-lieu of notice. Make it clear whether the employee is
permitted to undertake other activities – for pay, or without
pay (such as charitable work) – during her employment, or
whether she must devote all of the time to the job, and other
activities ( or certain ones) are either completely off-limits, or
require the employer's consent ahead of time.
- Entire Agreement
Clause. Another "legalese" clause that can make
a difference in a dispute, this clause states that the written
agreement is the complete agreement, and supersedes any prior
agreements – oral or written, drafts or final – the
employer and employee might previously have made about the
contract's subject. The intent is to prevent either from
claiming there are other contract terms in addition to those in the
- Remedies for Breach of
Confidentiality. The normal resolution from a court is
monetary compensation. Employers should include a clause specifying
the employee's liability for monetary compensation for breach
of her obligations, but the contract should also state that this is
insufficient, and that the employer and employee contemplated and
accepted an injunction (a court order to stop doing something)
and/or specific performance (a court order to do something) if the
employee breached her confidentiality obligations.
- Independent Legal
Advice. Include a clause in which the employee
acknowledges she had the opportunity to seek independent legal
advice on the contract. And be sure to actually give the employee
time to consider the contract and to get that legal advice before
- Resignation Notice Clause. Employers often require senior executives to give notice of resignation in order to deal with difficulty in recruiting or replacing a specialized skills position and to ensure a smooth transition. The resignation notice is often considered a moral obligation, and most employers do not act on such a clause – but it is enforceable.
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.