Each year thousands of individuals in Ottawa will negotiate employment contracts with prospective employers. Unfortunately, many of those individuals will not be equipped with the proper knowledge and information to enable them to draft, negotiate and execute an employment agreement that will adequately protect their rights.
The rights, duties and obligations which apply to parties in an employment relationship are complex and highly regulated. In Ontario, the employment relationship is impacted by various pieces of legislation including, but not limited to, the Ontario Human Rights Code, the Occupational Health and Safety Act, the Employment Standards Act, 2000 (the “ESA”), and the Workplace Safety and Insurance Act, 1997. Although many aspects of the employment relationship are governed by legislation, employees and employers still have the ability to negotiate certain terms and conditions of an employment relationship through the use of a properly prepared employment agreement.
Although an employment contract is essential for both employers and employees, an improperly drafted or executed employment contract can have unintended consequences and can be detrimental to the employer, the employee or, in some cases, to both parties.
Void for Lack of Consideration
An employment contract that lacks consideration at the time it is signed will be deemed void. An employment contract, like all other contracts, requires three things to be binding: offer, acceptance and consideration. Consideration is the legal principle that requires each party to a give and receive something in order to make a contract binding. As such, in order for an employment contract to be binding, an offer of employment must be made and accepted and solidified by consideration (which is usually the exchange of compensation for employment) on or before the time it is signed. Often even well-negotiated employment contracts are found to be invalid when an employee begins working and then later signs an employment contract. The employment contract is void because the compensation provided to the employee before the contract is signed does not count as consideration for the later signed employment agreement. With no new compensation (i.e., “fresh” consideration) at the time the contract is signed, the employment contract is rendered invalid. As such, it is important for employees to sign their employment contracts before their first day on the job and for employers to ensure that “fresh” consideration is provided for any new employment agreements it requires its employees to sign.
The issue regarding lack of consideration was addressed in Rejdak v. Fight Network Inc. In Rejdak, the employee was offered a job with the employer in a telephone call on a Friday night in which the parties agreed to a start date, title, and salary. The following Monday, the employee quit his old job and reported for work with the employer. The employee worked all day Monday, and was given a written contract to sign that day. He took it home, signed it, and returned it to the employer the next day. It was a standard form employment agreement used by the employer. The contract included, amongst other things, a three month probationary period during which time the employee could be dismissed without notice. The employee was dismissed during the probationary period, and the employer argued that pursuant to the contract it was not required to provide the employee with any notice. The employee sued for wrongful dismissal, claiming “reasonable notice” entitlements. The court held that the contract signed by the employee was invalid because the employee had accepted the job and started working before the agreement was signed.
Failure to Provide Benefits During the Notice Period
Employment contracts often contain provisions detailing the amount of notice to be provided to the employee in the event the employer decides to terminate the employment relationship. Such provisions must comply with the minimum requirements set forth in the ESA, otherwise they will be deemed invalid. One common reason these termination clauses are held to be invalid is because the fail to provide for continuation of benefits during the notice period.
In Stevens v. Sifton Properties Ltd., the court held that a termination clause which did not provide the employee with continuation of benefits during the notice period was invalid for its failure to meet the minimum requirements of the ESA. Because the clause was invalid, the employee was entitled to receive “reasonable notice” according to the common law standard and not simply the less generous ESA notice minimums the employer had attempted to include in the contract.
Implied Probationary Periods
Another common error found in poorly drafted employment contracts are provisions which provide for probationary periods that are either inconsistent with the ESA (i.e., they allow for termination without notice of employees who have been continuously employed for three months or more) or are vague and do not define what “probationary period” actually means. In Easton v. Wilmslow Properties Corp., for example, the employee’s contract included an undefined probationary period. In finding that the employee was not a probationary employee, the court held as follows:
The existence of a probation period is a question of fact in each case. Since it takes away an employee’s usual rights, a probationary period must be expressly agreed to by the employee. It cannot be implied into the relationship. The defendant must clearly indicate what will happen if the relationship ends before the probation terminates.
For Employers and Employees Contact Merovitz Potechin LLP
Whether you are the employer or the employee, the contract codifying the relationship is incredibly important. Having the employment contract properly drafted by a skilled lawyer is essential if you are an employer. Similarly, if you are a potential employee it is important to consult with an employment lawyer before signing any employment agreement in order to understand your rights and responsibilities.
If you are an employer who is looking to hire a new employee, or whether you are an employee who needs advice on a potential employment contract, the experienced employment lawyers in Ottawa at our firm provide advice that you can trust. At Merovitz Potechin LLP, we have 40 years of experience helping employers and employees negotiate contracts that successfully protect their rights and limit their obligations in an employment relationship. Contact us today at 613-563-7544 for more information.