The transition of many businesses towards remote and flexible work arrangements is an example of how the traditional work environment is quickly changing. These changes may incentivize many employers to revisit and replace existing employment contracts. While not all changes to an employment contract are a cause for concern, an understanding of what is and is not allowed to be changed is prudent for both employers and employees. 

What is an employment contract?

In Ontario, an employment contract is an agreement between an employee and employer that sets out the terms of employment. This agreement is the basis of an employee’s employment rights and is an important contract that courts will refer to when any issues or conflicts arise between an employee and an employer. The different types of employment contracts can be found here.

What terms are included in an employment contract?

While the Employment Standards Act (ESA) sets out minimum employment standards that must be followed in the course of employment or in a workplace, it does not provide a strict format for employment contracts. 

Typically, an employment contract will set out the following terms of entitlements or rights:

• Minimum wage;
• Overtime pay;
• Public holidays;
• Vacation with pay; and
• Notice of termination or termination pay.

Freedom of contract gives employers the legal right to freely draft the terms and provisions of employment contracts that best suit their workplace or business needs. However, there are minimum standards that must be met, and the terms set out in an employment contract must not be in direct conflict with the ESA.

Employers are also not limited in the formality of an employment contract. While it is advisable for both employers and employees to have a written employment contract, verbal employment agreements are recognized in Ontario. However, the enforceability of the terms and conditions in a verbal agreement may be an issue for employees or employers looking to keep the other accountable. 

Can an employer change the terms of an employment contract?

While employers are allowed to make changes to an existing employment contract, employees are not legally obligated to sign a new contract. In common law, when a change to an essential term of a contract is made, the parties involved discharge the obligations of the existing contract, making it null and no longer enforceable, and enter into a binding contract with new obligations. This is also applicable in all employment contracts. 

Employees should be wary when faced with a new employment contract and should seek legal advice when unsure. 

The Ontario Court of Appeal decision in Wronko v Western Inventory Service Ltd, 2008 ONCA 327 highlights the options that are available to an employee when faced with a new employment contract. 

What options are available when faced with a new employment contract?

The first option represents a situation where there is no conflict. An employer may ask their employee to sign a new contract. Although they are not obligated to do so, they may review and agree to the altered terms and sign the new agreement. The new employment contract will now govern and bind the employment relationship between the employer and employee. 

The second option, mentioned in Wronko v Western Inventory Service Ltd, is where the employee rejects the new employment contract. If this occurs, and the employer is persistent in conducting the employment relationship under the terms of this new contract despite the employee’s rejection of it, then a constructive dismissal has occurred and the employee may sue for breach of contract.

The third option occurs where an employee rejects the new contract proposed, and the employer allows them to maintain the status quo and continue their employment obligations under the existing contract with no modification. If the employer wants to enforce the new contract, they have the option to terminate the employee, albeit with proper notice of termination in accordance with the existing contract and ESA, and then again rehire the said same employee under the new contract. However, if there is no notice of termination, and the employee continues their employment under the existing conditions, this will be seen as the employer’s acceptance of the existing contract. 

Conclusion

Employment contracts set out the terms and conditions that govern the relationship between an employee and employer. While employers are free to draft these contracts in a manner that best suits their interests, they must adhere to the minimum standards outlined in the ESA. Failure to do this will result in a contract being void and unenforceable. Understanding the limitations of employment contracts is important for employees and employers as they set out the rights and obligations of those involved. 

The common law doctrine of freedom of contract applies to all employment laws, which restrict any one party from forcing another into a contractual relationship. There is no legal obligation for an employee to sign a new employment contract. While employers may terminate the employment relationship, this must be done in accordance with the existing contract, all ESA entitlements, and proper notice must be given. 

Contact Achkar Law

If you are unsure about the legality of terms in an employment contract our team of experienced employment lawyers at Achkar Law can help.

Contact us today at +1 (800) 771-7882 or email [email protected], and let us help you find the solutions you need to move forward.