Implied Employee Contract

							   Employer/Employee
   Contract Negotiation
(“Parting is such sweet sorrow”)
                     -W.S.

              by
      Eric Durnford, Q.C.
   Why should I use Employment
            Contracts
• Relationship between an Employer and
  Employee is, at its core, contractual
• The employer and the employee can set the
  terms
• Parties intentions are clear, avoids/reduces
  litigation
• If no written contract, an indefinite employment
  relationship is presumed and employee is
  entitled to common law reasonable notice or
  equivalent severance on termination
  Employment Contract Basics
• Offer and Acceptance
  – Offer = employment contract provided by the
    employer
  – Acceptance = signing contract by employee
• Consideration
  – Employment in exchange for remuneration for
    services provided
  – Critical to get the contract signed before the
    employee starts work
   Employment Contract Basics
• Illegality
   – Contract illegal if the employee is required to commit
     illegal or immoral acts.
   – Watch requirements of Labour Standards Code and
     Occupational Health and Safety

• Ambiguity and Contra Proferentum
   – If a clause is ambiguous, it will be interpreted against
     the party who drafted the contract (usually employer)
   – Be consistent in drafting, define terms, and use
     examples for complex issues
  Employment Contract Basics
• Duress and unconscionability
  – Courts presumption (rarely rebuttable) that
    there is inequality of bargaining power
    between employer and employee.
  – Be careful not to use undue pressure on
    employees to sign contracts.
  – If terms are unduly harsh or unfair, it may not
    be enforced. (smell test)
 Drafting the Employment Contract
• As the employer, control the drafting.
• Use clear language and try to cover every
  key situation
• If it is not clear, terms can be implied
  based on:
  – custom or usage
  – the particular class or kind of contract
  – the “presumed” intention of the parties
 Drafting the Employment Contract
• When drafting:
  – Cover all working conditions and contingencies (use a
    checklist);
  – Use clear, consistent and unambiguous language
  – Ensure terms are consistent with employment
    handbooks and policies (make contract govern if
    conflict)
  – Use plain language
  – Format the text
  – Write for the reader
  – Keep sentences and paragraphs short
               Basic Terms
• Nature of employment
  – expectations of the employer as to level of
    employee’s performance
• Management Rights
  – Allows the employer to make changes to the
    employee’s working conditions without
    requiring consideration or creating
    constructive dismissal
  – e.g. right to change the employee’s hours of
    work, location, duties (within reason)
              Basic Terms
• Exclusive service
  – The employee will be required to devote all of
    his/her attention to this position and cannot
    have other employment except with
    employer’s written consent
  – Must be reasonable or will not be enforceable

• Remuneration
  – Salary and benefits
                 Basic Terms
• Termination
  – How much notice of termination should the employee
    receive in non-cause situation?
  – What constitutes “just cause” to these parties - specify
  – If these are not specified, common law applies
• Restrictive Covenants
  – Non-competition clauses
  – Non-solicitation clauses
  – Non-disclosure and confidentiality clauses
               Basic Terms
• Injunctive Relief
  – Explicitly gives the employer the right to seek
    injunctive relief for violation of restrictive
    covenants (deemed irreparable harm)
• Term
  – If not specified, assumed to be indefinite
  – Fixed term – by date, completion of project,
    etc.
                 Basic Terms
• Authority
  – For senior executives, extent of authority to act on
    behalf of the employer and when the employee must
    go to the senior governing body, eg. Board of
    Directors, Council
  – Spending authority/ability to contract with third parties
• Vacation
  – Included in remuneration but should also be
    specifically spelled out (includes Labour Code
    minimums)
  – Address ability to carryover vacation, amount and for
    how long
                Basic Terms
• Employer’s Property
  – Provide for return of employer property on termination
  – Include equipment, vehicles, credit cards, books,
    records, reports, files, CDs, manuals, etc.
  – Consent for shortages/losses/damage to be paid by
    employee at Employer’s discretion
• Assignment of Rights
  – Provides for the assignment of Employer’s rights to
    successors and assigns
  – Prohibits the assignability of employee’s rights
             Basic Terms
(not unique to employment contracts)
• Notices
  – Specify method for providing notices and deeming
    receipt of notices (be careful)
• Severability
  – Allows for an unenforceable term to be severed
    without affecting the remainder of the agreement
• Entire Agreement
  – Previous agreements, representations are null and
    void
             Basic Terms
(not unique to employment contracts)
• Modification
  – Must be in writing and signed by the parties
• Governing Law
  – Provides for the applicable law (important if
    employer is in one jurisdiction but employee
    works in another jurisdiction)
  – Provide for exclusive dispute resolution
    mechanism – eg. Arbitration vs. Courts
               Implied Terms
• Indefinite Employment
  – If term is not fixed, assumed indefinite
• Reasonable Notice
  – If not specific, employee receives reasonable notice
    on termination without just cause
  – Can be expensive ( up to 24+ months)
• Duty of Loyalty
  – Prevents the employee from pursuing other interests
    which conflict with the employer
  – Only exists while the person remains an employee
    unless a non-competition clause is included.
            Sticky Issues
  Enforcing Termination Provisions
• Notice provisions must comply with provincial minimum
  labour standards provisions
• Specifically refer to the labour standards legislation that
  applies
• Ensure, as a minimum, employees are paid statutory
  notice on termination
• Address both termination with cause and without cause
• Ensure these provisions are specifically brought to the
  employee’s attention at the time of hire
• Ensure contract provisions are consistent with written
  policies and employee handbooks (identify which
  governs if conflict)
                 Sticky Issues
                Term Contracts
• Term contracts automatically terminate at the end of the
  employment term with no further obligation to the
  employee
• Ensure an end date is specified
• Unless otherwise specified in the contract, a term
  employee who is terminated early is entitled to
  compensation for the remainder of the term, subject to
  obligation to mitigate (Roger Neilsen)
• Termination provisions are essential; particularly
  addressing termination during the early part of the term
  (sliding scale of severance)
• Successive term contracts may result in an indefinite
  term contract
              Sticky Issues
           Probationary Periods
• Advantages:
  – assess the employee’s suitability, competency level
    and “fit” for permanent employment
  – provides ability to terminate with little or no obligation
    to the employee (wording is crucial – “sole and
    unfettered discretion”)
  – creates a lower level of “cause”
• Disadvantage:
  – affects the ability to attract good people
• Probationary period must be agreed to before
  the employee starts work
• Employees must be treated fairly and given a
  reasonable opportunity to demonstrate their
  ability to do the job
            Sticky Issues
  Non-solicitation/Non-competition
• Enforceability is the exception, not the norm
• Non-solicitation – protects the employer’s customer base
  – cannot solicit customers or employees
• Non-competition – broader, employee cannot use
  knowledge gained to his/her competitive advantage –
  cannot set up business in direct conflict with the
  employer
• Non-competition clauses may not be enforceable were a
  non-solicitation clause would adequately protect the
  employer’s interest
• Courts consider whether the temporal and spatial limits
  are reasonable
• Consider paying for the non-compete
           Sticky Issues
       Confidentiality Clauses
• Allows the employer to enforce the duty to
  keep information confidential after the
  employment relationship ends
• Define “confidential information”
• A separate confidentiality agreement may
  be more appropriate if the employee has
  access to sensitive information on a daily
  basis
              Sticky Issues
          Frustration of Contract
• Usually arises when an employee becomes
  indefinitely ill or disabled
• Considerations to determine if frustration exists:
   – Does the contract provide for sick pay?
   – How long was the employment was likely to last in the
     absence of the sickness/disability
   – The nature of the employment
   – The nature of the illness
   – The period of past employment
• Difficult to make a case for frustration
• Address specifically in the employment contract
            Sticky Issues
        Constructive Dismissal
• Unilateral change to a substantial or
  fundamental term of the employment contract
  (explicit or implied)
• Employee can view himself as dismissed, resign
  and is then entitled to reasonable notice
• Includes significant demotion, substantial
  reduction in pay, substantial change in work
  location, hours, etc.
• Avoid by providing notice of the change or
  consideration for the change
• Address specifically in the employment contract
• Expressly state certain changes will not
  constitute constructive dismissal
               Conclusion
           Tips for Employers
• Do not rely on standard forms
• Use clear and unambiguous language
• Ensure the contract is consistent with policies
  and manuals
• Ensure terms are fair and reasonable and
  comply with applicable legislation
• Provide employee with copies of all documents
  referenced in the contract
• Do not pressure the employee to sign
• Have contract signed before the employee starts
  work