June 11, 2003by Israel Foulon LLP
Employment contracts are useful tools for defining the terms of the employment relationship. They can help avoid conflicts later in the employment relationship, even after good relations break down.
Used correctly they allow more flexibility and certainty for employers than an undefined employment relationship. From an employer’s perspective, the most common reason for having a written employment contract in place is to define and limit the amount of notice an employee will be entitled to upon termination of employment where no just cause exists.
So long as the notice provision contained in the contract is no less than the minimum provincial standard, the agreed-to period of notice should be enforceable provided the contract has been implemented in a fair and timely manner.
The easiest time to institute an employment contract is at the beginning of the employment relationship. But it may be possible to bring a contract into an existing relationship at a later date. Here are a few tips on how to introduce employment contracts to new and existing employees. The suggestions in this article are necessarily generalized and may not be appropriate in every situation. When in doubt, legal advice is recommended.
Employment contracts at the start of the employment relationship
New candidates for employment should be interviewed at least twice before being hired. If the first interviewer is suitably impressed, the employer should schedule a second interview. If the candidate remains impressive, an offer of employment can be made.
The candidate should be given a written copy of the offer and advised to take it away to consider and obtain advice, legal or otherwise, before signing the contract. She should not be allowed to sign the contract at this meeting. She should receive the applicable policy manual and be told to read all the documents prior to the first day of work. The signed contract and an acknowledgement that the employee has read and will be governed by the policy manual should be collected before the employee starts work on the first day.
Failure to obtain the written employment contract prior to the start of employment may result in the terms of the written agreement being unenforceable.
Introducing an employment contract into an existing relationship
An employer generally cannot insist that existing employees sign a written contract without providing the employees with some new consideration for signing the contract. Quite innocently the employer may be altering rights the employee has gained through her tenure. Therefore insisting on a written contract could amount to constructive dismissal.
If employees do not receive any consideration for the alteration of their existing rights, the contract may be challenged later in court and found to be unenforceable.
But there may be situations which create an opportunity for the employer to implement a written employment contract for an existing employee. Where the employee is being offered a promotion or an increase in remuneration, such offer can be made conditional on the execution of a written contract.
Alternatively some employers wish to implement written employment contracts for all of their existing employees at one time, whether or not those employees are receiving a promotion or salary increase.
Those employers can also implement written employment contracts provided they comply with the legal requirement for a binding variation of their existing employment contract with those employees. In order for the written employment agreement to be binding, the employee must receive consideration for giving up a certain amount of her existing rights.
In some cases it may be possible for this consideration to be an express or implied promise of job security (or forbearance from termination) for a specific period of time. This, however, is a complicated issue and should not be attempted without legal advice.
Similar to the implementation of a written employment contract for a new hire, a specific process should be followed when implementing written contracts for existing employees.
The form of agreement should be presented to and reviewed with the employee and she should be advised to take it away, consider it with her advisors and seek independent legal advice if they deem it necessary. The employee should also be told she must return the signed agreement on or before a certain date. That date should be far enough away to give the employee sufficient time to seek advice if they choose to do so.
Similar to new hires, the existing employee should not be allowed to sign the agreement at the time the agreement is initially presented.
Two scenarios may occur as a result:
- The employee returns the signed agreement on or before the specified date. The agreement will then become effective on the date specified in the employment agreement.
- The employee fails to return the signed agreement on or before the specified date. In such a case, an employer can consider whether it wishes to terminate the employment of employees who refuse to sign written employment contracts. If this is the decision, the employer must be prepared to provide the employee with either working notice or pay-in-lieu of notice as an existing employee’s refusal to sign a written employment contract will not typically provide just cause for dismissal.
If employers follow these procedures, the written employment agreement will generally be enforceable.
Peter Israel and Chris Foulon are partners in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. They can be reached at 416-640-1550 or firstname.lastname@example.org or email@example.com. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today.