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Managing within the law

Tips for drafting an employment contract
Thursday, November 8, 2012
By Lisa Cabel

An employer may mean to provide its employees with fair employment contracts but when disputes arise, parties often disagree on the rights they believe they have.

To avoid this pitfall, here are some tips for drafting an employment contract.

Clear and unambiguous contracts
Although oral contracts are acceptable, main terms and conditions should be put in writing to ensure certainty. Written contracts also provide evidence of the essential elements of an agreement: offer, acceptance and consideration, the latter of which is a benefit given to the employee often in the form of salary or commission.

Employment contracts must be entered into freely without the employer’s undue influence; if not, a contract may be unenforceable. To ensure a contract’s enforceability, the employee should be given at least one week to review the contract and its addenda, and to seek independent legal advice if required. To ensure a contract was given sufficient consideration, the employee should sign it before the first day of work. Signing a contract on the first day of employment may be construed as a form of duress.

In addition to the standard contract terms – position, hours of work, salary, benefits and vacation time – the following terms should be included in an employment contract: duties, probationary clause and termination clause.

Duties
If an employee has many duties or it is unclear from the employee’s title what their duties are, these should be described broadly in the contract to give the employer flexibility. If the duties are clear, a description may not be necessary and a general clause could be used instead.

Probationary clause
Although the Employment Standards Act (ESA) provides for a probationary period, an employment contract should still set out the conditions so that both parties are aware of their rights.

The term “probation” should be used.

Although the probationary period does not have to be limited to any length of time, most employers choose a three-month period. If the period is longer than three months, the employer should provide the employee with the minimum notice requirement if a dismissal occurs after three months but within the probationary period. To ensure there is no confusion, it might be wise to include specific start and end dates of the probationary period.

The employment contract should stipulate the purpose of the probationary period, which is to assess the employee’s suitability for the position. An employer might also choose to include that vacation cannot be taken during the probationary period and the probation may be extended where necessary.

Termination clause
Where the employment is terminated without cause, the ESA provides for a minimum notice requirement. However, any enforceable terms or conditions under the employment contract that provide a greater benefit than the ESA requirement will prevail. To ensure certainty, the employment contract must provide that the ESA applies and cannot provide for less notice than the ESA requirement.

Where an employer wants to include a specific notice period, the period should be long enough to meet any potential statutory notice period requirement.

For example: “Should [employee’s name] be terminated for reasons other than cause, then [employee’s name] is entitled to a minimum of [number of] weeks notice, or pay in lieu of notice, and in case will receive no less than what is required under the ESA, as amended from time to time.”

Additional clauses
Other terms that should be considered and added where appropriate are allurement/no inducement, restrictive covenants, intellectual property rights and confirmation that the employee received independent legal advice or, in any event, the opportunity to seek independent legal advice.

Lisa Cabel is a partner in the Toronto office of Borden Ladner Gervais LLP. She practices in the area of labour and employment law. Lisa can be reached at 416.367.6217 or [email protected].

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