Employment Contracts 101: Key Considerations and Pitfalls in Employment Agreements

One of the first items employers and employees must consider when entering into an employment relationship is the terms that will govern that relationship. In almost all cases, those terms will be set out in a written employment agreement. Employment agreements can be quite simplistic, meeting only the basic requirements of a contract and the requirements of legislation, such as the Employment Standards Code. These agreements can also be complex and cover a number of different conditions.

At the most basic level, any contract must have three things in order to be enforceable:

1. An offer,
2. consideration (i.e. payment), and
3. acceptance.

In the employment context, an employer makes an offer of employment to a new-hire, in which the employee is given salary or other compensation, and the employee is then given the option of accepting that arrangement. Upon the employee accepting the offer, the employer and employee have a binding employment contract.

There are a number of key terms that should be included in all employment agreements. These are:

• job description
• remuneration
• term of employment (i.e. indefinite or fixed term)
• termination
• probationary period (where applicable)
• severability clause

Conditional offers of employment are also possible and should be included in the written offer of employment. For example, an employer may want to hire an employee on the condition that they provide that employer with a clear criminal record check. If the employee accepts the offer and the criminal record check comes back clear, then the employment agreement will come into force.

While consideration is often quite obvious in the context of employment arrangements, it is important for employers to remember and recognize that any change to an employee’s contract requires new or additional consideration. For example, if an employee’s job description changes to include more responsibility, in most cases, the employer should provide that employee with a raise.

Where this issue becomes particularly problematic is in the context of updates to employment policies. All employees should be required to agree to the terms of all employment policies as part of their employment agreement; however, if the employment policy is updated without notice to the employee, this amounts to a change in their employment agreement, and new or additional consideration is required. Employers can avoid this issue by including policies as part of the employment agreement and including a provision in the employment agreement that states policies may be subject to change and employees will be notified in advance of changes. Employees should then be asked to agree in writing that they have received policy updates and are aware of any changes.

Some terms that are also quite common in employment agreements include:

• ownership of intellectual property (where applicable)
• restrictive covenants (i.e. non-disclosure, non-solicitation, and non-competition)
• relocation
• benefits
• choice of law
• entire agreement
• incorporation of employer policies

While oral contracts can be binding, it is best to put all contracts in writing. This reduces uncertainty relating to terms and makes it easier to interpret and apply the contract down the road. However, even when an employment contract is reduced to writing, there will almost always be terms that are implied as part of the contract. For example, even if it is not reduced to writing, an employer will always be required to provide a safe workplace for employees. For employees, it will always be an implied term of an employment agreement that they are required to perform their duties in good faith and with loyalty to the employer.

One of the most important aspects of employment agreements is that employers cannot, under any circumstances, contract out of the minimum standards set by the Employment Standards Code. For example, employers may be tempted to set a very low reasonable notice period upon termination in an employment agreement; however, if that reasonable notice period is lower than the minimum provided to employees in the Employment Standards Code, then that provision will be void. There are methods to limit the common law reasonable notice period that employees may be entitled to, but employers must be careful in those circumstances as well to ensure that employees clearly understand what they are agreeing to. If you are an employer that would like to include a limiting provision in an employment agreement, we would suggest speaking with a lawyer to ensure that the provision proposed will be enforceable.

As part of finalizing a written employment agreement, it is also important to ensure employees are notified of any unusual terms of the agreement, are provided with enough time to review the entire contract and clarify any terms with the employer, and are given the opportunity to review the entire agreement with a lawyer. If an employee is not given a fulsome opportunity to understand and review their employment agreement, it is possible that the employment agreement will be unenforceable.

When drafting an employment agreement, the most important things to remember are that the language used should be clear and concise, the employee should be given every opportunity to understand what they are signing, and minimum statutory requirements under the Employment Standards Code should never be contracted out of.

If you are an employer looking to update or enter into an employment agreement, please feel free to reach out to the author Lauren Chalaturnyk a member of our Labour & Employment Team.