Why have employment contracts become so important?

Managing partner at Overholt Law to speak at upcoming Employment Law Masterclass Vancouver

Why have employment contracts become so important?

In years past, organizations didn’t pay much attention to written employment contracts: most employees were simply hired on an indefinite basis, and they began their employment journey.

But times have changed, and the highest levels of a company now regularly weigh in on these issues, according to Carman Overholt, managing partner at Overholt Law in Vancouver.

“Companies increasingly allocate time to negotiating compensation matters,” she says.

“ For instance, boards of directors now have compensation committees to address executive compensation matters and to ensure that their CEO has a strong financial incentive to produce great results and achieve the goals of the business.”

As one of the featured speakers in the upcoming Employment Law Masterclass Vancouver, Overholt shared some of the areas he will be talking about during his panel discussion — which will cover the topic of contracts — with Canadian HR Reporter.

The evolution of contracts

While many employees are hired on a more formal basis these days, 30 years ago, things were a lot different, according to Overholt.

“Some large employers created very basic employee handbooks that included internal policies and confirmed practices — but often failed to consider whether those policies and practices complied with employment standards and human rights legislation.”

As time wore on, many HR departments began to feel that more was needed when it came to managing risk hiring new staff.

“Where employers did create employee handbooks that were compliant with the law, in some instances, they included policies addressing discipline and termination of employment that in turn created new obligations for the employer that could not be easily satisfied,” says Overholt.

With the new year upon us, there is no better time than now to update some employment contracts, especially considering bonuses are due, according to two experts.

Expectation of obligations

As the Canadian Supreme Court has ruled, on many occasions, the most onerous terms of employment are not valid anymore and employers have to be aware, says Overholt.

“For employers and employees alike, there is now an expectation that the written contract of employment will reflect significant employment obligations.”

With today’s red-hot employment market, it’s no longer a simple matter of signing a contract, she says, and HR and employers must work harder to ensure compliance.

“While many employees execute written employment agreements and offers of employment, savvy senior management and executive employees are likely to obtain employment law advice and recommendations before executing an employment agreement. Employers are now accustomed to negotiation of the key terms of employment for many positions.”

In addition to salary, variable compensation is becoming increasingly complex in its application, he says.

“Courts have increasingly recognized this development in the business world by awarding damages for the loss of the opportunity to earn executive compensation where incentive compensation can be shown to have been an integral aspect of the compensation of the employee.”

Besides this extra compensation, many employers are playing it safe against future risk by “increasingly including mediation and arbitration terms in contracts to facilitate confidential, cost-effective and timely dispute resolution,” says Overholt.

Register today for more great insights at the upcoming Employment Law Masterclass Vancouver.

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