There’s a simple reason why employment lawyers encourage HR professionals to use employment agreements with employees, according to J.P. Karam, a partner at Willis Business Law in Windsor, Ont.
“It’s because they provide clarity and set expectations for the terms and conditions of employment,” he said. “But also if they’re well drafted, they’ll help reduce exposure to liability and could ultimately save your company money.”
Karam made the remarks on May 29 at the Human Resources Professionals Association’s (HRPA) Annual HR Law Conference which was held in Toronto and via a virtual live stream.
But there are some challenges to drafting enforceable contracts, he said, and one of the biggest issues is ambiguity in the language.
“Remember that these employment agreements will likely be interpreted by courts in favour of employees,” he said, as courts have historically taken the view that employees have less bargaining power in the workplace.
Another stumbling block is the use of unenforceable clauses, because if one termination clause is found to be unenforceable then all of them could be found to be unenforceable, said Karam.
Three basic elements in any contract
There are three basic elements to any contract — offer; acceptance; and consideration, he said.
“Consideration is just a fancy legal term for, ‘I give you something and in exchange you give me something in return,’” said Karam.
That means, if an employer wants to change the contract, it must provide the employee with something of value in exchange for them entering into the new, updated contract.
Termination clauses
Termination clauses should confirm what entitlements will be provided to the worker upon termination, he said.
“Remember, the goal here is to limit liability as much as possible — and that’s precisely where things get tricky,” said Karam.
The Employment Standards Act in Ontario provides for minimum entitlements, and employers want to stick as close to those minimums as possible. The way to do that is to draft enforceable clauses, but that also means revisiting them to ensure they’re still valid as the law evolves.
In the recent Ontario Court of Appeal ruling in Waksdale v. Swegon North America Inc., the court held that if one termination clause is unenforceable then all of them go out the window.
“It’s kind of like a domino effect,” he said. “And all the more reason to have your employment agreements reviewed as often as possible.”
Problematic wording
Karam provided practical examples of problematic termination clauses from recent court cases. One clause stated that the company could terminate an employee “at its sole discretion and without cause.” This language was deemed unenforceable because it suggested an employer could terminate an employee at any time, without any justifiable reason, which is not legally permissible, he said.
Another example involved a clause that stated employees would be entitled to notice of termination, termination pay, and/or severance pay as required by the Ontario Employment Standards Act (ESA). The inclusion of the word “or” rendered the clause invalid because it suggested that employees might receive severance pay without notice, which is not allowed under any circumstances.
Karam also highlighted a clause that allowed for termination for “just cause without prior notice or any payment in lieu of notice.” He clarified that “just cause” is a common law concept and not recognized by the ESA, which uses the standard of “willful misconduct, disobedience, or willful neglect of duty.”
Three takeaways
Karam listed three things HR professionals should take away from his presentation.
First, ensure employment contracts are reviewed regularly.
“At the beginning of my career, it was customary for my clients to reach out to me maybe once per year, maybe once every other year and have their employment agreements reviewed,” he said. “That won’t cut it anymore.”
Second, if you’re about to embark on a hiring spree, that’s a “really good” time to have the language in employment contracts reviewed, said Karam.
“That last thing you want to do is hire a bunch of people that are operating under unenforceable employment agreements,” he said. “Look over your offer letters and ensure they contain those three elements that we talked about earlier: offer, acceptance, and consideration.”
Also, contracts can — and should — look different for workers at varying levels in the organization.
“A director or senior manager should not be operating under the same type of agreement as an entry-level clerk,” said Karam.
Third, Karam urged HR and employers to strike the phrase “just cause” from their vocabulary. Instead, use the language found in the ESA — because it does not recognize the concept of “just cause” for dismissal.
