A job offer whether written or oral will become an employment contract if the job offer is accepted. Everyone who has a job has an employment contract. Offers of employment can, of course, be negotiated prior to acceptance. The negotiations are not limited to key terms such as salary and vacation and may include any term of employment. One key area of negotiation that is sometimes overlooked, but should not be, is the employee’s entitlements if dismissed from his or her employment.
Employment contracts can be for a fixed period of time or of indefinite duration (a.k.a. permanent employment). Although an employment contract can be oral it is recommended that a written employment contract be used to set out the terms and conditions of an employee’s employment in order to minimize the possibility of future “he said, she said” disputes between the parties over key terms of employment.
A court will imply terms into the employment contract if the employment contract is silent regarding those terms. For example, if the employment contract does not contain a termination clause the court will find that there is an implied term in the employment contract that the contract may only be terminated by the employer without cause by providing the employee with reasonable notice of dismissal.1 Express and implied terms in a contract are equivalent in effect.2
The clauses in employment contracts that are most likely to be the subject of a legal dispute between an employee and employer are: (i) the termination clause or, if the contract does not contain a termination clause the employee’s entitlement to reasonable notice (ii) clauses that set out an employee’s entitlement to variable compensation such a bonus, commission and/or stock options; and (iii) restrictive covenants (e.g. non-competition and/or non-solicitation clauses). Lawsuits involving these issues often revolve around the interpretation or meaning of the disputed clause and/or whether the clause is legally enforceable.
A significant percentage of employment contracts in Ontario contain clauses that will not be enforced by a court. It is a mistake to assume that just because an employment contract sets out an employer’s entitlement or an employee’s obligation that a court will enforce the term of the contract. The employee may enjoy a much greater entitlement than that set out in the contract.
If the language in an employment contract is open to several interpretations the court will interpret the employment contract in the way most favourable to the employee.3
Given the significance of termination and restrictive covenant clauses it is advisable that employers ensure that clauses in their employment contracts are not only clearly drafted but will be enforceable in the jurisdiction (i.e. Ontario) where the employee will be working. A common mistake employers make is to have Canadian employees sign employment contracts that have been drafted in the United States, taken off the Internet or drafted by individuals who lack the necessary understanding of employment law legislation and jurisprudence that govern employment contracts. It is often too late for an employer to amend a poorly drafted employment contract after it has been accepted by the employee because a court will refuse to enforce the amended contract unless the employee with new consideration such as a bonus or promotion when he or she accepted the revised contractual terms.
Similarly, employees who receive offers of employment that contain termination clauses and restrictive covenants should ensure that they understand what these clauses actually mean and whether or not a court is likely to enforce the clauses. It is common for employers to place termination clauses and non-competition and non-solicitation clauses in employment contracts that will not be enforced by a court.
Termination clauses in employment contracts are normally inserted by employers into employment contracts to minimize the cost of dismissing employees. All too often, employees sign these employment contracts without understanding the significance or meaning of the termination clause. Individuals are often shocked to learn that their entitlements when terminated are minimal because they signed employment contracts years earlier that removed many of the rights that they thought, incorrectly, they enjoyed. The result can be the loss of tens of thousands of dollars (and in some cases hundreds of thousands of dollars).
Employment contracts containing termination clauses should be reviewed by an experienced employment lawyer. Many termination clauses will not be enforced. An employment lawyer who understands the relevant legislation and who is up to date with the latest decisions of the court can usually quickly determine whether the clause will be enforced.
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- see Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC) at paras. 20-22; ↩
- BG Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 at p. 31; ↩
- see Ceccol v. Ontario Gymnastic Federation, 2001 CanLII 8589 (ONCA) and Christensen v. Family Counselling Centre of Sault Ste. Marie and District, 2001 CanLII 4698 (ONCA); ↩