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The power of the pen

Employers had better make sure they like an employment contract before signing

By Jeffrey R. Smith

The employment contract is a key tool for employers to bring certainty to the employment relationship and, as long as both parties stick to it, a good way to avoid legal troubles.

However, employers — as well as employees — better make sure they’re content with the contract because, once they sign on the dotted line, there may be no turning back.

Recently, the Alberta Court of Queen’s Bench was faced with the task of sorting out a contract dispute between the owners of an Edmonton travel agency and its president. Each side claimed a different contract was in effect and each contract had a different termination provision. Things came to a head when the owners terminated the president’s employment and implemented their termination provision, while the employee maintained his version was the real one.

When the employee was initially recruited, he was on a work permit as he wasn’t Canadian. In order to work for the new company, he had to get a new work permit for that specific company. The owners invited him to draw up a business plan, which he wouldn’t do until he was an official employee, so they consented to him drawing up a job description and draft employment contract he could include in his work permit application.

The employee met with a minority owner of the travel agency, who proceeded to sign the contract that included a termination provision of one year’s salary or notice for termination without cause. About a month later, the majority owners sent him a new employment contract with a termination provision stating they could evaluate his performance after one year and if he wasn’t meeting their objectives, he could be terminated with no severance.

The employee rejected this new contract as it was substantially different to the one he initially agreed to and signed. It wasn’t mentioned again and the employee continued to work for the travel agency, calling himself the president in all communications. However, after a year, the owners told him he wasn’t meeting objectives and they were terminating his employment under the termination provision in the second contract, which he hadn’t signed. The court determined the original contract was in force and they owed the employee one year’s salary. If the owners had wanted the second contract in force, they needed the employee’s approval and signature, said the court. As it was, they allowed him to continue to work under the original contract signed by the minority owner.

Having an employment contract is usually a good thing for employers, but only if the contract in force is one both parties agree to. The employee had presented a contract and both parties signed it, so until another one to which both parties agreed replaced it, that contract was the employment contract. It was a bad oversight to let the employee continue to work under the original contract — and perhaps to even have someone sign it in the first place — if it wasn’t the contract they wanted. But they committed to it and were stuck with it.

It can also be important for employers to determine who should be signing contracts. If the majority owners of the travel agency wanted specific things in the contract different from what was originally negotiated, they should have waited to sign themselves — or at least continued to negotiate for some of the items in the new contract. The advantages of having an employment contract can also be disadvantages if the employer signs something it’s not quite happy with.

Either way, its bound by that contract unless both sides agree to change it.

Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective. He can be reached at jeffrey.r.smith@thomsonreuters.com or visit www.employmentlawtoday.com for more information. 

© Copyright Canadian HR Reporter, Thomson Reuters Canada Limited. All rights reserved.

Jeffrey R. Smith

Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective.
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