What is an Employment Agreement?
Employment agreements are formal legal documents that govern the terms of employment. The agreement is executed by the employer and employee. All employment agreements in Ontario must comply with the Employment Standards Act.
The contents of employment contracts are important due to the consequences they could have for both sides. A typical agreement would include:
- Job title and duties
- Start date, working hours, work location, remote work, travel and other foundational terms and conditions
- Vacation time, sick days and other special arrangements
- Compensation terms, benefits and any financial incentive programs, for example: bonuses, profit-sharing, stock options and retirement savings plans or pensions
- Workplace policies, guidelines, rules and written manuals that the employee must abide by
- Ownership of any materials and work-product
- Temporary layoffs – are they permitted and under what circumstances
- The circumstances under which employment may be terminated for cause
- A termination clause that sets out the notice and severance terms for an employee who is terminated without cause
- In some cases, non-competition or non-solicitation provisions may be included, as well
It is important to acknowledge that all employment relationships in Ontario are contractual, even without a written and signed contract. As soon as an employee is hired, there is an agreement in place where the employee performs certain tasks in exchange for wages. There doesn’t even have to be a verbal agreement – as soon as the employer/employee relationship starts, an agreement is implied.
The concern with that is if problems arise, the terms of employment are governed by the Employment Standards Act and Human Rights Code – there is no specific terms or clauses, which could be less than ideal for both parties but typically more so the employer.
Given those facts, employers typically require employees to sign an employment agreement that is specific to the terms that they want. Typically the agreement would signed before the employee begins work.
Employment Agreement Formats
A simple offer letter or a more detailed multi-page contract are both acceptable employment contract formats.
Benefits of Employment Agreement/Contract
The benefits of a custom, detailed and written employment agreements are:
- Defining all terms so there is clarity, which can help both parties avoid contentious issues later
- Proof of the terms, which is helpful in the event of a conflict
- Clarity on termination and all related issues, to help avoid litigation down the road
- Compensation terms are defined, making it easier to handle issues related to raises etc.
- Both sides understand their rights and responsibilities, so there is no inadvertent violation – “I didn’t know” is typically not a good defence
Are Employment Agreements Enforceable?
Employment agreements are typically enforceable unless there is a specific issue causing the agreement to become unenforceable. When an employment agreement is found to be unenforceable, it is replaced by a common law employment agreement in favour of the employee.
Some reasons an agreement may not be enforceable:
- Employment contracts need to be given to the employee to sign when the new job commences. If the agreement is given after the start date, it is unenforceable unless it is given at the same time as a promotion
- Undue influence and duress
- When over time, an employee’s position, responsibility and compensation change drastically from what was outlined in the agreement
Employment Contract Points of Interest
Employment agreements are typically written in favor of the employer, in Ontario. Since common law favours employees, this balances things out.
Employees should be sure to look out for a termination clause that limits your to notice of termination according to the Employment Standards Act’s minimums (one weeks’ notice per year of service). Employers usually opt to insert their own termination clause because it prevents the employee from being entitled to more lucrative compensation than the Employment Standards Act’s minimums.
Employers: Consider using a lawyer to draft your agreement to ensure you are properly protected. The cost is well worth it, given what they can save you with a solid agreement. The two biggest mistakes that people make when drafting their own agreements are sloppy drafting of the termination clauses and reliance on the internet for information that is often incomplete. Employment agreements are highly technical legal documents. The absence of a specific word or phrase can cause an agreement to be unenforceable. Details and specificity are very important.
Employees: Having a lawyer review your agreement is well worth the expense, as the termination clause could cost you a lot if your rights are restricted. CEO Law makes it easy and affordable to get the help you need. We offer three packages that allow you to get exactly what you need for a set price, helping you with cost control. Learn more here.
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