Written employment agreements can reduce costs and headaches

Once an employee starts working for a company, they already have a verbal agreement in place

Written employment agreements can reduce costs and headaches
Nadia Zaman

Instead of just playing the game, why not make the rules?

If you are an employer, you are probably busy running the business. You might feel like you don’t have the time to engage the services of an employment lawyer to implement proper contracts and policies within the workplace. Perhaps you have a boilerplate contract that you already use for your employees, and you have never had an issue.

Well, at least not until now. Suddenly, you have an employee who has alleged wrongful dismissal. You advise the employee that in accordance with the law and their contract, you only owe them eight weeks of pay. The employee says they will seek legal advice. A week later, you receive a demand letter from the employee’s lawyer seeking 24 months of pay.

That may be shocking to you, and also quite costly.

The good news is: you are not alone and this can be managed as well as avoided altogether. The bad news is: you might owe the employee in question more severance than you initially thought you do.

Verbal and written contracts

A lot of employers do not realize it, but all employees have contracts — whether verbal or written. So if you do not have a written employment contract in place, then the contract is verbal and comprised of the terms that you explicitly discussed with the employee, such as position and compensation, along with a host of other terms that will be implied by law. The terms are largely designed to protect the employee, not the employer.

For example, the requirement to provide reasonable notice in the event of dismissal is what employees are entitled to by default at common law (i.e. judge-made law). This can be a tremendous cost to an employer already seeking to reduce labour costs. You could be on the hook to provide 24 months of notice or pay in lieu of notice, when you could have easily avoided that by having an enforceable contract in place owing the employee only eight weeks of notice or pay in lieu of notice.

Since termination clauses are often successfully challenged and found unenforceable, it is critical to ensure that they are drafted and implemented properly; otherwise, the contract will not be worth the paper it is printed on.

In addition to reducing costs, well-drafted contracts — especially when combined with helpful policies — will strengthen your legal position. These are legal documents but should be drafted in a practical and strategic manner, based on the goals and needs of your business. When done properly, contracts and policies can provide much needed certainty in the world of employment law which is often riddled with uncertainty.

For instance, instead of having to debate an employee’s entitlement to severance, or the expectations you have relating to their conduct or behaviour within the workplace, you can set these terms out in writing and manage the relationship more effectively.

As we often say, a well-drafted and properly implemented contract is the most effective way to improve your legal position as an employer.

Best practice for employers

So what should you do as an employer? Here’s what we recommend:

  • Have every employee sign an employment agreement (not just your executives).
  • Make it clear that the individual has not been hired until they sign the agreement and any conditions have been satisfied.
  • Include clauses to address issues including:
    • duties and responsibilities
    • hours of work
    • vacation
    • salary, bonuses, and other forms of compensation (retaining as much discretion as possible)
    • benefits
    • confidential information
    • privacy issues
    • ownership of inventions and information
    • restrictive covenants
    • dismissal (this clause can easily save you tens of thousands of dollars)
    • the right to impose temporary layoffs
    • discipline
    • conditions of offer (such as a reference check, background check, etc.)
    • anything else of importance to the organization.

One of the most common mistakes employers make is to have the employee sign the contract at the time they commence their employment, or after they do so. Many employers do not realize that once an employee starts working for the company, they already have a verbal agreement in place. This means replacing the verbal agreement with a new contract that is drafted for the employer’s benefit will be tricky.

For starters, the employer will have an obligation to provide the employee with fresh consideration (i.e. something of value in exchange for signing the contract, such as a signing bonus, raise, more vacation days, or some other greater benefit); otherwise, the contract will not be enforceable.

If you currently have written contracts in place, you should get them reviewed by an employment lawyer as the contracts may be unenforceable and could expose you to substantial liability. If you do not currently have written contracts in place, you should seek legal advice to draft and implement strategic and enforceable contracts in place which can help you maximize your rights and flexibility as well as minimize costs and potential liability. And finally, even if you do not have plans to hire new employees in the near future, you should work with an employment lawyer to move your existing employees onto new and enforceable employment agreements.

Don’t play the game when you can make the rules — it’s not only more fun, but also better for your business.

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