Employment Agreements in Ontario: Five Common Mistakes

Five Mistakes Employers Make Drafting An Employment Agreement

You may have come across a written employment contract at least once. An employment agreement outlines the terms and conditions of an employment relationship.

Ensuring a written employment agreement is legally binding and clear reduces the chances of any misunderstandings or workplace disputes. Conflict with employees can be costly, stressful and time-consuming. When you can easily avoid those issues and other legal risks, why not?

You might be wondering if you should draft the employment agreement yourself. Maybe you’re thinking it is more cost-effective to find a template online for free and change the terminology. Many employers thought the same thing and ran into significant problems.

Described below are five common mistakes employers make when drafting employment agreements. Further, you will learn how to address improperly drafted employment agreements before problems arise.

What Are Five Common Employment Agreement Drafting Mistakes?

There are many legal pitfalls an employer may face when drafting an employment agreement, but five common ones are:

  • Using Out-of-Date Employment Agreements;
  • Making Unrealistic Promises;
  • Failing to Limit Termination Entitlements;
  • Failing to Protect Business Interests; and
  • Drafting without Legal Advice.

#1 – Using Out-Of-Date Employment Agreements

One of the biggest mistakes employers make is reusing their own employment agreements or others that were drafted years ago. True, it gives you a base or a draft for the new employment agreements; but you need to ensure all the terms and conditions comply with the current law.

The law is constantly changing. You need to make sure an important clause in the employment agreement is compliant with the law. If not, the specific provision or the entire contract may be void and legally unenforceable. This opens employers to serious legal risks, defeating the point of having a written employment agreement in the first place.

#2 – Making Unrealistic Promises

At times over-excitement leads to over-commitment. Employers are often dragged into it, so they promise certain benefits and perks to prospective and current employees; Sometimes resulting in failing to deliver.

For example, you might offer a prospective employee equity ownership or a unique bonus structure as part of their employment but not outline the contract’s conditions for those additional perks. Or maybe you discussed certain benefits verbally and thought only the employment contract’s written terms would be legally enforceable.

You might be surprised that a verbally promised term of employment missing from the formal written contract is still binding on an employer. You can reduce the risk of this happening by adequately drafting a clause stating only the written employment contract governs the employment relationship.

If an employment contract isn’t explicitly and clearly outlining what an employee’s compensation, benefits and perks are, you are risking a court siding with the employee in the case of a dispute.

#3 – Failing to Limit Termination Entitlements

When an employer terminates an employee without cause, they owe the employee their minimum entitlements under provincial or federal employment legislation. This can include:

  • Termination pay instead of notice;
  • Statutory severance pay;
  • Benefits continuation;
  • Unpaid wages; and,
  • Accrued but unpaid vacation.

An employee could be entitled to a maximum of 34 weeks of regular earnings for statutory notice pay upon termination.

Employees are also entitled to common law reasonable notice or pay instead of notice upon termination without cause, including their minimum statutory entitlements. This can range up to 26 months of pay instead of notice. Luckily, employers can avoid this issue by including termination provisions in their employment contract restricting an employee’s common law severance.

Termination clauses can be powerful. If you draft a strong and legally compliant termination clause, employees could be restricted only to their minimum statutory entitlements. Termination clauses that are ambiguous, attempt to contract out of minimum statutory entitlements or are otherwise held to be unenforceable are void.

If a termination clause is considered void at the time of an employee’s termination, the employee is then entitled to their full, common law entitlements. Even if an employee signed a contract ten years ago, it would be reviewed for its legality upon the employee’s termination.

Ensuring you draft a termination clause properly requires you to know the current law on the subject. Using old employment contracts containing outdated termination clauses and failing to update contracts for older service employees opens you to paying much more for employee severance.

#4 – Failing to Protect Business Interests 

One of the key elements of an employment agreement is protecting your business interests as an employer. This is including but not limited to:

  • Protecting your confidential information;
  • Safeguarding your trade secrets;
  • Establishing and enforcing your intellectual property rights;
  • Preventing conflict of interest; and,
  • Preventing employees from otherwise harming your business.

While employees owe certain obligations to employers by default, you should explicitly outline them and extend them beyond the employment relationship’s end. If an employer improperly drafts provisions meant to protect their business interests, they may not be able to sue the employee for losses in profit and other damages.

The common nightmare scenario is that a disgruntled employee is fired and starts using your confidential client lists for their own or a competitor’s benefit. Even worse, that employee then solicits your employees and suppliers to their own business they set up to compete with you.

#5 – Drafting Without Legal Advice

Unless you are a lawyer or other licensed legal professional, there is no way to know how to best structure a written employment agreement to minimize legal risks. Drafting the agreement yourself without consulting a lawyer can result in extremely costly errors.

While online templates and free resources for drafting employment agreements are helpful, they are not a substitute for legal advice. You can avoid most, if not all, common employment agreement drafting mistakes with an employment lawyer’s help. The benefits of reducing substantial legal risks far outweigh the costs of retaining an employment lawyer to assist with drafting a written employment contract.

You may be anxious that you made all the mistakes mentioned above. If you are wondering if your business is at risk of those issues. You can rest easy. There is still a way of governing employment relationships and ensuring employee relationships through strong employment agreements.

How To Fix Employment Agreement Drafting Mistakes

The first and most crucial step in resolving any legal issue is to seek legal advice. Our lawyers at Achkar Law frequently draft employment agreements and would be happy to assist.

The next step is to evaluate where your errors were and work with your lawyer to flesh out all the details about the employment relationship with the employee. You would provide all the necessary information, and your lawyer would do the drafting.

Once the new employment agreement draft is ready, the only step remaining is to present the employee with the contract and offer a signing bonus or some other benefit they did not have before, like a raise or more vacation time, in exchange for their signature. The new contract should explicitly refer to this consideration you are offering to the employee and state the old employment contract’s terms are void.

Employers shouldn’t attempt to force employees to sign any new agreement or change their employment terms without consent. This could result in a claim for constructive dismissal, entitling the employee to severance. Guidance from an employment lawyer to avoid issues like this is imperative if you intend to update employment contracts with employees.

Conclusion

Employment contracts are an excellent tool for minimizing risk to employers. However, improperly drafted employment agreements leave the employer open to risk and uncertainty. The five common employment contract drafting errors are:

  • Using Out-of-Date Templates.
  • Making Unrealistic Promises.
  • Failing to Limit Termination Entitlements.
  • Failing to Protect Business Interests.
  • Drafting without Legal Advice.

You can save yourself trouble and minimize risks as an employer by consulting an employment lawyer to assist with drafting your employment agreements. You can also fix your previous drafting errors by updating your employment contracts with an employment lawyer’s help.

Contact Us

Whether you are an employer or an employee needing assistance with reviewing or drafting an employment agreement, our team of experienced employment and human rights lawyers at Achkar Law can help. Contact us by phone toll-free at +1 (800) 771-7882 or email us at [email protected], and we will be happy to assist.

If you are a small or medium-sized company looking for full-service support with a same-day response, visit our CLO Program page for our strategic solutions.

Disclaimer: The goal of this blog is only educational and to help you understand some of the common and general inquiries we receive. Please do not rely on this as legal advice because legal advice is tricky and dependent on specific situations. Make sure you consult with a lawyer before using this information. Should you require legal advice for your particular situation, fill out the contact form, call (800) 771-7882 or email [email protected]