May 12, 2004 by Israel Foulon LLP
Question: Many of our company’s existing employees are employed without an employment contract. What issues should I be aware of when deciding whether or not to ask these employees to sign a contract that would provide some clarity with respect to issues such as hours of work, termination and severance?
Answer: The employment relationship is a contract. Whether the terms of the contract are written or oral, they are equally binding and enforceable. Some employers incorrectly believe that, in the absence of a written contract, there is no employment contract. Every employment relationship has at its root a contract of employment, whether or not it is in writing.
An employment contract can be entirely in writing, or entirely oral, or partly written and partly oral. An employer will often hire an employee and document the hiring with a letter that welcomes the employee to the organization, states the position and remuneration, but fails to address issues such as the benefits or the notice the employee will be entitled on dismissal.
This offer of employment constitutes the written contract between the parties, while issues not covered within the letter but discussed during an interview may constitute the oral portion.
The danger is, in the absence of a written contract that clearly enunciates all of the terms, the law must search elsewhere to determine the parties’ rights and obligations.
The parties who do not take the time to reach a written agreement may find the courts will fill the void by implying certain terms into the employment relationship. How a court does this may or may not reflect what the parties intended.
Consider the situation where an employee under a verbal contract is entitled to three weeks’ vacation per year. Is she entitled to vacation during the first year, or only after 12 months of employment? If the employer and employee disagree, there will likely be hard feelings or disappointment one way or the other.
Assume this disagreement results in the employee’s termination and a subsequent action for wrongful dismissal. Claims for wrongful dismissal after termination are based on the concept of reasonable notice or pay in lieu of notice. Courts imply a term into the oral contract that a reasonable period of notice must be given, and the question arises as to what is reasonable in the circumstances of each case. If the contract is in writing, and those issues are addressed, there is no room for disagreement and no room for judges to imply the contractual terms they feel are just.
Therefore, from both the employer and employee’s prospective, oral agreements should always be put in writing. Ideally this should happen prior to the start of the employment relationship. If the employment agreement is executed after the employee has started working it may not be enforceable due to a lack of consideration. In such circumstances courts have held that continued employment may be sufficient consideration to allow for the validity of the contract where there has been express or implied forbearance on the part of the employer from terminating the employment of the employee for a reasonable period of time. Accordingly, if you are seeking to implement employment agreements after an employee has already commenced working, you should contact a lawyer to get advice with respect to the enforceability of such an agreement.
Peter Israel is the senior partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or pi@qtw38575.mywhc.ca. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today