Every detail needs to be examined in employment contracts

By Tony Poland, LegalMatters Staff • Companies whose employment contracts have not been thoroughly vetted to ensure they are compliant with the Employment Standards Act, 2000 (ESA) could find themselves paying the price when attempting to enforce them, says Ontario employment lawyer Nadia Zaman.

Zaman, an associate with Rudner Law, pointed to the Ontario Superior Court of Justice decision in Henderson v Slavkin et al. to illustrate the need for due diligence when creating employment agreements and the importance of regularly reviewing those contracts.

“Because of the imbalance of bargaining power between employers and employees, the onus is on the employer to make sure they are drafting employment agreements in a way that does not violate or potentially violate the Employment Standards Act,” she tells LegalMattersCanada.ca. “We recommend that employers review their employment agreements and policies on an annual basis, at the very least, because employment law is ever-evolving. It is essential to ensure those contracts and policies are still enforceable and can be relied upon.”

Deficiencies can invalidate agreements

On the surface, employment agreements in general and termination clauses in particular can appear to meet the necessary legal standards but a closer examination can reveal deficiencies that invalidate them, says Zaman.

As an example, she cites Waksdale v. Swegon North America Inc., where the Ontario Court of Appeal ruled that if any part of a termination provision in an employment contract was in breach of the ESA, the entire termination clause is unenforceable and a worker is entitled to wrongful dismissal damages.

Zaman says Henderson v Slavkin et al., released in August, is similar in scope. The case involved the termination of a 63-year-old receptionist with 30 years of service at a dental office who was given six months of working notice. In her wrongful dismissal claim, it was her position that her contract of employment was “unconscionable” as it contained provisions that were contrary to the ESA.

While the court found there was no problem with the actual termination clause on a standalone basis, the employment agreement included confidentiality and conflict of interest clauses that violated or potentially violated the ESA. Because of this, the termination clause was unenforceable. The court ruled the woman was wrongfully dismissed and entitled to a 15-month notice period.

Language rendered clause unenforceable

“Employers need to keep in mind that even if they have an otherwise enforceable termination clause, if there’s termination language, even outside of the termination clause in the contract, it may be used to invalidate the termination clause as a whole,” says Zaman, who was not involved in the case but comments generally. “That is what this decision clearly illustrates. It was because there was termination language in other parts of the contract that the termination clause was rendered unenforceable.”

“Given the latest case law, employers would be wise to review their agreements to ensure other provisions of the contract do not violate the ESA, especially in relation to termination of employment. Otherwise, they could be on the hook to pay common law reasonable notice of termination to their employees. And that could end up being substantial.”

• Workplace culture an important part of right to disconnect legislation
• Hosting a workplace vaccination clinic? Think it through
• Employers must be proactive when dealing with racial equality

She notes that the pandemic led to a multitude of changes in employment law. There have also been a number of precedent-setting court decisions recently so employers need to be proactive when it comes to such issues as employment agreements to avoid financial hardship down the line.

“Just to give an example in terms of the cost, let’s say you are terminating a long-service, elderly employee who has been with the company for 30 years,” Zaman says. “If you have a proper contract in place, you could limit their severance entitlement to eight weeks under the ESA. Under common law, they could be entitled to up to 24 months of pay.

Workers could be entitled to various types of compensation

“As well, in many instances workers have various types of compensation that they are entitled to under the terms of their contract,” she adds. “In common law – and many employers do not realize this – those employees are entitled to all compensation and benefits during the entire notice period unless there is a contract or policy that explicitly excludes it. There could be a situation where the employer is on the hook to pay substantial damages if the contract or policy is not worded properly or if it is not implemented properly.”

Employers should review employment policies, especially those that include termination language, along with contract language to ensure they are in line with the ESA, Zaman recommends.

However, even if an agreement is drafted properly, it may be unenforceable if it was not implemented correctly, she warns.

“We see this all the time. Employers have workers sign these contracts after the employee has already started working with a company,” Zaman says. “What they may not realize is that the contract is not enforceable unless fresh consideration has been provided to the employee in exchange for signing it.”

Employer must offer ‘something of value’ with new contract

She explains that for the agreement to be valid, it must be signed before the start of an employment relationship. If an employer wants to implement a new agreement for an existing employee, they must offer “something of value” in exchange for signing it, such as a signing bonus, a promotion or more vacation entitlement, says Zaman.

“The employer must make it very clear in the agreement that what is being offered as consideration is in exchange for the employee’s agreement to sign the new contract,” she says. “What is being offered cannot be something that the worker already expects or that the employer would normally provide, such as an annual bonus.

“It can be counterproductive to spend time, money and effort to draft legally binding contracts if they are not properly implemented,” Zaman adds. “When we are advising employer clients, we walk them through the process, not only drafting the contracts, but also making sure that they are respecting the process, especially newer clients who are going through this for the first time.”

She says every detail in an employment agreement is important.

“You cannot simply have a properly worded termination clause and think you can rely on it solely,” Zaman says. “You really have to do a holistic review of the contract as well as any other documents that are referenced within the agreement. 

“When you are reviewing your employment contracts, you should look at those other documents to ensure they are actually enforceable and do not inadvertently violate the employment standard legislation.”

More from Rudner Law:

Negotiation can be best option in a constructive dismissal