How to craft the best possible employment agreements

'Waksdale probably invalidated about 95% of the contracts out there'

How to craft the best possible employment agreements

After a 2020 seminal Ontario court case threw many employment lawyers for a loop, there is one sure-fire way to thwart potential lawsuits, says an employment lawyer.

“Drafting deficiencies are really at the core of litigation and disputes,” says R. Mark Fletcher, partner at Grosman Gale Fletcher Hopkins in Toronto.

“If you’ve got a really good contract, you can prevent a lawsuit before it happens because the employee’s lawyer will say, ‘This contract is enforceable. It’s really well-drafted. There’s nowhere we can go from here.’”

Employers want a contract that is enforceable so they can predict what the outcome will be given certain circumstances, says Fletcher.

“You want predictability and you don’t want to find out later on, when you’re in court, that the contract you’re relying on is unenforceable.”

Waksdale case invalidates contracts

Fletcher, who represents both employees and employers, will be speaking at the upcoming Employment Law Masterclass event to be held online on Sept. 7 and he shared some of his presentation notes with Canadian HR Reporter.

“With the recent Ontario Court of Appeal case in Waksdale — which dealt with just cause language in a termination clause and how if it offends the ESA [Employment Standards Act] — it brings down the entire regime and I would say that Waksdale probably invalidated about 95% of the contracts out there.”

Participants at the event will hear how to identify potential problems to avoid legal challenges in the wake of the Waksdale v. Swegon North America Inc. case in which one error in an employment contract caused the Ontario Court of Appeal to invalidate the entire agreement.

“The case law that’s flowed from Waksdale say that you can do your best to comply with ESA, you can have language that says, ‘We will comply with the ESA, we’re going to guarantee your minimums’ but if you’ve got the wrong language in there, that won’t save you,” says Fletcher.

Language key to employment agreements

Besides getting the language done correctly, employers should also be mindful that “proper consideration is being paid over to the employee in exchange for it,” when making any meaningful change to an employment agreement, according to Fletcher.

“If you’ve got an existing employee who’s either been promoted or who’s getting a pay increase, that’s the time to put forward revised contractual terms for existing employees; and if it’s for someone who is about to start, make sure that their start is conditional on them signing off on the employment agreement and getting it back before they start.”

When considering a change to an employment agreement, employers should be realistic to avoid legal challenges down the road.

“One of the things you’re going to want to have is a provision in your employment contract that deals with changes to the terms of employment that you’d want to use — terms like ‘reasonable’ because if you suddenly make the CEO a mid-line supervisor and have a big demotion, that’s obviously going to be something major. You want to have a clause that would allow for some reasonable changes on notice to the employee,” says Fletcher.

The end of non-compete clauses

In addition, those who prepare contracts need to be aware that rules around restrictive covenants have also recently changed, says Fletcher.

“Employers who want to have non-compete clauses within their employment agreements have to be careful to make sure that they’re complying with the new ESA rules around who you can have non-competes for.”

There are exceptions, such as C-suite types of senior leaders or people who have sold their business and then become employees of the purchaser of that business, he says, “but for the vast majority of employees out there, you can’t have a non-compete anymore.”

Register today for the upcoming Employment Law Masterclass event.

As part of his session “Case study: Employment contracts – Identifying potential problems to avoid legal challenges,” Fletch will provide an update on common issues associated with drafting contracts, including ensuring enforceability making sure compliance with recent legislative changes, and future-proofing, along with:

  • Enforceability issues: how to minimize the risk of your contract being found as unenforceable 
  • Ensuring compliance with both federal and provincial legislation 
  • Best practices for changing terms of employment 

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