Employment Contracts

Employment Contract and Gavel

When hiring new workers, employers often use employment contracts to set out the terms of the employment relationship. The contract may outline the entitlements, obligations and restrictions of both parties. Employees may view the contract as a safeguard to their rights and expectations, but contracts most often result in restricting the employee’s rights and limiting the employer’s obligations in a number of essential areas. Understanding the implications of a properly drafted employment contract helps employees and employers to clarify and set the parameters of their working relationship.

Format—Written, Oral and Often Evolving

Although preferable for the protection of both parties, a contract of employment need not be in written form. Terms can be made by express or implied oral agreement and even through the conduct of the parties.

Although usually signed at the start of the relationship, the employment contract is not necessarily frozen in time. Instead, it often evolves after the initial hiring has occurred. New and modified terms of a contract can occur where an employee has been with an employer for a long period of time and where there have been changes such as promotions, organizational restructuring, increases to remuneration and other factors, which have been mutually agreed to, either expressly or by the parties’ conduct.

Implied Terms—The Unwritten and Unspoken

Some terms in an employment contract may be implied. This means that although not expressly written or stated by the parties, the implied term is reasonably expected by the parties. For instance, it is implied in every contract of employment that an employer will provide the employee with reasonable notice in the event of a termination. It is also implied that an employer may terminate the relationship without notice if there is just cause. Another example of an implied term is that employees will perform their duties with reasonable skill and diligence.

These implied terms of the employment contract can be modified through clear, unambiguous written wording that is legally sound, provided that such modifications do not breach statutorily imposed minimum standards.  One common area for such modifications is termination provisions that attempt to curtail an employee’s entitlement to common law notice. For such modifications to have effect, they must be drafted very clearly and must not be in violation of current employment standards legislation.

Areas Typically Covered

Contracts may contain few or many details. Some of the more common terms included in employment contracts include restrictions and limitations in the following areas:

  • Changes to the employee’s contract of employment in such areas as remuneration, duties, job title and geographic work location. Unless terms are clearly set out, changes to the essential terms could result in constructive dismissal if the employee refuses the changes.
  • Amount of reasonable notice that the employee is entitled to in the event that the employer terminates the employee.
  • Competition by the employee by setting up business in competition with the former employer, or by joining a competing company, either during or after the period of employment.
  • Soliciting by the employee of the employer’s staff or clients, either during or after the period of employment.
  • Discussion or disclosure by the employee of the employer’s confidential information.

Validity

Similar to other commercial contracts, an employment contract’s validity is not determined solely by the written or oral consensus of both parties. For the contract to be valid and enforceable, it must meet some basic conditions. At the most fundamental level:

  • there must have been an offer and acceptance of the contract
  • the contract and its terms must not be unconscionable or illegal
  • there must be “consideration” (some benefit for each of the parties) for entering into the contract

Common Examples of Invalid Contracts

In some cases, a duly drafted and signed employment contract may be deemed invalid by a court. For example, if an employer were to change the existing employment contract so as to eliminate an existing contractual or common law right of the employee (such as benefits, vacation time or termination notice), consideration may not be present so as to constitute a valid contract, thus rendering the contract invalid. Even if the employee signs the contract, the terms may not be able to be legally enforced by the employer at a later date.

In another common example, an employer may send an employment candidate an offer letter that details only the essential terms of the hiring contract. The candidate is required to accept the abbreviated contract as such, with an expectation of subsequently signing a more fulsome employment contract. If the terms of the employment contract attempt to significantly alter the basic terms of the offer (such as changing the offer from a contract of indefinite duration to a fixed-term contract, changing previously offered termination notice to the statutory minimums, or adding restrictive covenants such as non-solicitation and non-competition) there may be a lack of consideration in the contract, thus rendering it invalid.

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