Friday December 6, 2019
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Should all employees have written employment contracts?

employment contract

Yes!  Certainty in the terms and conditions of an employee’s employment contract is an excellent way to avoid potential conflict and reduce potential liability and “costs” (i.e., lost opportunity costs; reduced productivity from decreased morale; increased absenteeism, turnover, recruitment and training costs; and litigation costs) now for the future.  Consider it everyone’s playbook should conflict arise or the employment relationship breaks down.

For example, defining in a without cause termination clause the amount of notice (employment standards minimums or something more as to duration and scope) when it is not a termination for cause or disentitling conduct under the applicable employment standards legislation and on what elements of the employees’ total compensation it will be calculated for its duration subsequent to the applicable employment standards period (e.g., base salary or base salary and group health and dental  benefits) rather than having to determine and negotiate with your former employee what is “reasonable” at the time of dismissal is a key reason to have written employment contracts for current employees and new hires.

That being said, having just cause termination and resignation clauses are also helpful in avoiding conflict and reducing costs.  In the first scenario employers often limit liability to what the employee has earned under the applicable employment standards prior to the termination date and stipulate that all bonuses and/or unvested stock options are lost in such circumstances.  In the second scenario, employers often limit liability in a similar manner as well as cap the maximum amount of working notice that an employee may provide the employer.  Where there is no such cap, the savvy employee can provide greater notice of resignation than they know their employer would be willing to accept in order to be paid out by the employer the additional time that it waives.

Don’t forget consideration…

And I am not just referring to being polite.  For contracts to be legally enforceable there must be an offer, its acceptance and the passing of consideration between you and your employee.

The offer of employment is sufficient consideration for future employees so long as they review and execute the contract before starting work.

For current employees, it is more complicated.  The law is clear that in providing sufficient or “due” consideration, what is offered must have value to the employee and be something that the employee did not have previously.  Otherwise the law is unclear in defining “what” constitutes due consideration.

So what is an employer to do with current employees?

Don’t minimize or falsely represent that the contract that you are presenting to them “merely reflects the existing terms and conditions of employment” unless this is true.  One of the prime motivators for employers to implement new employment contracts for their existing employees is to seek to impose new terms and conditions (like a termination clause) – otherwise why undertake the process to implement them?

Do utilize the opportunity to use an upcoming planned positive change to the terms and conditions of an employee’s employment – like the rolling out of new group benefit plan,  an incentive program, a raise, a promotion, additional vacation entitlements or anything else of actual value to the employee, to ensure that you have in place “due consideration” for the changes to the employees terms and conditions in employment that you are seeking to implement under their new employment contract.

Alternatively, if you want to change an employee’s current terms and conditions of employment but don’t have anything new to offer as consideration and the employee does not wish to voluntarily agree to the change, you can provide notice of the change.  Meaning, you determine what is reasonable notice for the employee in their circumstances (as if you are dismissing them without cause) and provide the equivalent amount of notice to the employee that the existing employment contract will terminate on a set date in the future at which time it will be replaced by the new contract.  This working notice can be substantial for a long-term employee with no prior termination clause – but don’t skimp or the notice of change will not be effective and the employee can sue you for wrongful (constructive) dismissal.

In any case, be knowledgeable and effectively apply your knowledge.

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  • Should all employees have written employment contracts?

    By Sheryl Johnson Time To Read: 3 min