What You Need to Know About Employment Contracts

Whether you are starting an exciting new employment chapter or are simply seeking clarification on the terms of your employment, employment contracts and agreements can be a great source of information but are often overwhelming. Employees need to be aware of what their employment contract entails, especially before they sign, as this important legal document governs the relationship between employer and employee and prevents any future disputes about the terms of employment. It is important to note that while some employers hire employees without having a written contract, this relationship is contractual even without the signing of a written document.

Basic Terms of a Contract

First and foremost, the basic employment contract will usually contain all relevant information about the employee’s job, such as the position, responsibilities, start date, and contract duration, location, compensation (and method), hours of work, entitlement to vacation, and policies in the workplace. In cases where you may have a more complicated salary structure (i.e. the inclusion of bonuses, commissions, promised raises, stock options, etc.), you should ensure that all financial compensation arrangements are clearly stated and documented.

There are minimum statutory standards for minimum wage, the timing of payment, and the maximum hours of work and overtime payment that must be followed, as per the Employment Standards Act. These are rights that cannot be given up, even if you sign as an “independent contractor.” You should be aware of these basic employee rights in Ontario, which can be found here. If there are any special promises or considerations made to you, you want to ensure this is also documented. Neither private benefit insurance nor pensions are mandatory entitlements.

Termination & Non-Competition Clauses

The contract will usually include a termination clause, which is often the most overlooked provision and includes details on severance pay and any post-employment restrictions. Often, employers may try to use this section to limit the amount of notice or payment instead of notice that they owe their employees in situations where they terminate the employee without cause. However, there are statutory standards for notice of dismissal (i.e. reasonable notice) or payment instead of such notice, and clauses in a contract should abide by the amounts required by the current legislation.

               Also, many employment contracts use restrictive covenants, such as non-competition provisions, non-solicitation provisions, and confidentiality clauses to protect the employer’s interests. Such provisions must be in writing and must be drafted narrowly and specifically to be enforceable. Non-competition clauses prohibit employees from competing with their employer (or releasing confidential information obtained while on the job) for a certain period in a certain location, during or following employment termination.

Non-solicitation clauses prohibit employees from soliciting or dealing with the employer’s customers for a certain period in a certain location after the end of the employment. Confidentiality clauses prevent discussion or disclosure of the employer’s confidential information. It is recommended that employers thoroughly consider if they wish to establish such provisions, and if so, they should try to draft them with legal counsel to ensure as much enforceability as possible.

Validity of a Contract

For a contract to be valid and enforceable, employment contracts require that there be an offer and an acceptance of the contract; that the contract was not unconscionable or illegal; and that there be consideration for entering the contract. Consideration is essentially something of value, a benefit for each of the parties – in this case, it would be the employer’s offer of a job, and the employee’s promise to provide a service.

Parties also must have voluntarily entered into the contract – there cannot have been any coercion or undue influence. In such cases, it may be asked that the employee seek independent legal advice regarding the contract before signing. Under some circumstances, the courts have even deemed a well-drafted and signed employment contract invalid. For instance, if a contract were constructed to eliminate an existing common law employee right to benefits, vacation time, or termination notice, the contract would be rendered invalid, even if it were signed by the employee.

When presented with an employment contract, it is recommended you review your full agreement to ensure that it covers all of the above provisions and is consistent with Canadian law and labor legislation. You may also wish to ask your employer for changes before signing it. Reviewing contracts can be frustrating – if you wish to talk to a lawyer about further clarification regarding your employment contract, please do not hesitate to contact us, and our specialist Employment Lawyers can discuss your matter in more detail over a free consultation. You can reach our office at 905-366-0202 or contact us through our website here.

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