The Risks of Working Without a Signed Employment Agreement
Not all employment relationships start with a written contract. Many employees in Ontario begin working under verbal agreements or informal arrangements. While this approach offers flexibility, it can create uncertainty about rights and obligations, especially when disputes arise or changes are proposed later in the relationship.
This article explores the legal implications of working without a signed employment contract, what happens when employers introduce new terms, and how both employees and employers can protect themselves with the right legal guidance.
The Risks of Verbal Agreements
While verbal agreements may seem straightforward, they come with significant risks for both parties:
- For Employees: Verbal agreements may entitle employees to greater rights upon termination, including severance, under common law. However, without clear documentation, proving the agreed-upon terms can be challenging in a dispute.
- For Employers: Employers may unintentionally leave themselves open to liability for greater severance entitlements or misinterpretations of agreed terms.
Most employers eventually introduce written employment contracts to limit liabilities and define key terms like hours, pay, benefits, and termination rights.
What Happens When Employers Introduce a Written Employment Contract?
Employers often ask long-standing employees to sign a written contract formalizing the terms of their existing verbal agreements. However, this process can create legal challenges if not handled correctly.
For example, consider an employee, A.Y., who has worked for five years under a verbal agreement, earning $62,000 per year with benefits. If their employer, B.W., introduces a written contract that limits termination rights to minimum Employment Standards Act, 2000 (ESA) requirements, A.Y. is under no obligation to sign.
Why? Because employers cannot impose new terms unilaterally without offering additional value, known as “consideration.” Examples of consideration include:
- A pay increase
- A signing bonus
- Additional benefits
Without this consideration, the attempt to impose new terms could be deemed invalid, and the employer may face claims of constructive dismissal.
Constructive Dismissal Risks for Employers
Constructive dismissal occurs when an employer significantly changes an employee’s terms of employment without consent. For example, introducing a written agreement with restrictive terms could result in claims for compensation far beyond what the ESA prescribes.
Key risks for employers include:
- Long-Term Employees: Employees with many years of service often have substantial common law entitlements.
- Specialized Roles: Workers in niche or senior positions may face significant disruption from imposed changes.
- Older Workers: Advanced age can factor into higher severance awards if the employee is dismissed.
Employers must tread carefully when introducing written contracts to avoid legal exposure.
Best Practices for Employers Introducing a Written Contract
Employers looking to formalize terms with a written contract must ensure the process is handled correctly:
- Offer Consideration: Provide additional value to employees as an incentive to accept new terms.
- Comply with the ESA: Ensure all clauses, especially termination provisions, meet minimum ESA requirements.
- Allow Review Time: Give employees a reasonable period to review the agreement and seek independent legal advice.
Failing to follow these steps could expose the business to costly disputes or claims.
Why Employees Should Seek Legal Advice Before Signing
Employees facing a new employment contract should always consult with a lawyer to understand its implications. Signing a new contract could mean:
- Waiving common law entitlements to greater severance pay.
- Agreeing to restrictive clauses like non-compete or confidentiality provisions.
- Losing flexibility in work hours or job responsibilities.
A lawyer can review the contract, explain its terms, and help employees negotiate better conditions if needed.
How Legal Guidance Protects Both Employers and Employees
Whether you’re an employer introducing a written employment agreement or an employee being asked to sign one, getting legal advice is essential. Employment lawyers can:
- For Employees: Identify unfair terms, clarify your rights, and help negotiate better conditions.
- For Employers: Draft compliant contracts that protect your business from liability while maintaining a positive employee relationship.
Avoid unnecessary risks and ensure your rights or business interests are fully protected.
Contact Us Today
If you’re an employee facing a new employment contract or an employer considering introducing one, contact us today. Our experienced employment lawyers provide clear advice tailored to your unique situation. Protect your future with legal expertise you can trust.
Contact Achkar Law
- Phone: 1 (800) 771-7882
- Email: [email protected]