Employment contracts offer a safety net in challenging times

By Tony Poland, LegalMatters Staff • In an ever-evolving workplace environment, giving short shrift to employment contracts is like walking a tightrope without a safety net, says Ontario employment lawyer Nadia Zaman.

Zaman, an associate with Rudner Law, says running a business in recent years can be overwhelming, especially in light of challenges brought on by the COVID-19 pandemic. 

This is why it is vital that employers not lose sight of workplace policies and employment agreements, she says.

“It has been a wild ride for employers from small companies to big corporations,” Zaman tells LegalMattersCanada.ca. “They have had to continually pivot to determine what changes are needed to their employment contracts and policies to ensure that they are still enforceable so that they are not inadvertently exposing themselves to liability.

‘I equate it to balancing on a tightrope’

“I equate it to balancing on a tightrope. You take a few steps forward and then you suddenly realize you could be in a precarious position,” she adds. “Perhaps the rope is now going in different directions. A misstep can be costly, so it is essential to have effective employment contracts and policies in place to adapt to any new challenges. Proper planning and legal advice are really an employer’s safety net.”

Zaman says while employers have had a great deal to absorb in the past few years, it has also been an exciting challenge for employment lawyers to keep pace with evolving workplace regulations and legal precedent.

And through all the turmoil, she says one of the most oft-repeated reminders she gives to employers is the need to draft and update enforceable employment contracts.

“We do our utmost to stay on top of all of the legislative and legal developments in an effort to guide our clients because these changes can have a significant impact on employers and employees,” says Zaman. “As an employer, not having a written agreement in place may turn out to be one of your worst nightmares.”

A terminated employee could be entitled to more compensation

Without an employment agreement, a worker terminated without cause would be entitled to compensation under common law, “which can be fairly substantial,” she says.

“For example, let’s say there is no agreement in place and the employer dismisses a long-service worker who is earning $50,000 annually,” Zaman says. “Under Ontario’s Employment Standards Act, 2000 a worker who signed a legally binding employment contract could be limited to eight weeks of notice of termination or termination pay. That would amount to less than $8,000. 

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“On the flip side, if there is no contract in place, that same worker could be entitled to up to 24 months of pay under common law, which would be $100,000.”

Some employers lose sight of the consequences of failing to have an enforceable employment contract, she says.

“They may only realize it after an employee has either sued them or has sent a demand letter from their lawyer,” says Zaman. “Now they have to deal with it. They may have offered a settlement they believed was reasonable and they are wondering why they may have to pay substantially more. 

“Then we, as employment lawyers, have to explain that because there is no valid contract, the employee’s entitlements are all based on common law reasonable notice of termination.”

‘An opportunity for an employer to lay out terms and conditions’

An employment contract is “an opportunity for an employer to lay out the terms and conditions of employment and the expectations they have for their workers,” Zaman says. 

“You are essentially setting the rules of the game as opposed to being a pawn in the game itself,” she explains. “It is critical to consider all aspects of your business. An employment lawyer would be able to assist you in terms of determining the nature of the workplace and defining the goals you hope to achieve.”

Zaman says it is also crucial to get advice from counsel who specializes in employment law. After all, you wouldn’t go to a dentist to get treatment for a broken arm, she says.

“I strongly recommend working with an employment lawyer,” says Zaman. “Sometimes we encounter contracts that have been drawn up by the same lawyer who deals with business issues within the organization. That is not to say these lawyers are not knowledgeable, but you really do have to be on top of all the employment law updates as they are happening in order to be able to properly advise your clients.

“In the past, people might think a lawyer is a lawyer is a lawyer,” she adds. “But I believe more clients are recognizing the importance of ensuring they are seeking legal advice from someone who has expertise in employment law.”

Zaman says they have dealt with clients who believed they had a solid contract in place that limited their liability “but because employment law is such a specialized practice area,” there were gaps that could be costly in litigation.

Risk to the organization

“There have been so many changes lately that these contracts really have to be perfect,” she warns. “If the contract comes up short, there is a risk to the organization as a whole.”

That can be especially true in situations where an employer has been using the same contract for years, Zaman says. 

“Let’s say you haven’t updated that contract since it was first drafted and you are now in a position where you have to terminate multiple employees,” she says. “If that agreement has gaps it could result in a huge negative impact on the business’s bottom line because now you may be exposed to substantial liability for multiple employees.”

Which is why reviewing contracts at regular intervals is imperative, Zaman says.

“Employers would be well advised to ensure they get their employment contracts reviewed on an annual basis at the very least,” she says. “Typically, we would suggest that anyway, but it is even more important post-pandemic given the frequency of legislative and case law developments.

“There have also been developments with respect to policy requirements, and employers should ensure workplace policies are reviewed and updated as necessary,” she says. “Reviews are necessary especially if employers are developing new policies or revising existing ones to ensure their employment contracts are consistent and in line with what they have in place.”

Next month Nadia Zaman will offer advice on drafting an employment contract