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The Value of an Enforceable Employment Agreement in Ontario

Now more than ever, businesses who hired their employees without an enforceable employment contract are realizing the extent of potential consequences. At times, employers are not aware that their employment agreements may in fact be unenforceable, and only find out after something goes wrong. This article outlines the value of an enforceable employment contract, and the benefits that go along with it.

Lay-offs in Ontario

Although the Employment Standards Act (“ESA”) contains the right for employers to temporarily lay off employees, this right generally must be enshrined in an employment contract to prevent an employee from alleging constructive dismissal.

The novel impacts of COVID-19 resulted in many employers temporarily laying off employees. In response, the Ontario government introduced regulation 228/20. This allows employers to reduce or eliminate an employee’s work hours for the “Covid-19 period”. Currently, this period runs from March 1, 2020 to January 2, 2021.

However, when the COVID-19 period is over, it remains unclear if employers will have protection from laid off employees bringing constructive dismissal claims.

The uncertainty of what the future brings for employers and employees alike is a key reason why now is a prime time to introduce or update employment contracts, to ensure that you have the flexibility to deal with these uncertainties.

Why do I Need a Written Employment Agreement in Ontario?

An employment agreement is governed by the basic principles of common law, but also set against the backdrop of the special relationship between an employer and employee. General principles of contract law apply, but courts also recognize the inherent power imbalance in the employment relationship. As such, there are certain rights and obligations that courts “read in” to an employment relationship.

Written employment contracts can increase flexibility for employers while clarifying the rights and obligations of both parties. Notably, an employment contract can save employers significant costs in the long-term.

For example, where an employer terminates an employee without cause, the employer must provide the employee with reasonable notice of their termination or pay in lieu of notice. The length of notice that an employee is entitled to depends on what his or her employment contract says (or does not say).

An employment contract that contains valid provisions on terminating an employee may limit an employee’s entitlement to the minimums set out in employment standards legislation. This minimum is approximately one week of notice per year of service, up to a maximum of eight weeks.

In contrast, where an employer does not have a valid provision limiting the employee’s entitlements to the legislated minimums, the employee may be entitled to several months of notice (or pay in lieu of notice).

Courts look at several factors to determine the appropriate notice period for the employee, which commonly ranges from 3 to 24 months (with higher awards being granted in exceptional cases).

How to Implement or Update an Employment Agreement in Ontario

Generally, am employer should ensure the employee executes their employment agreement prior to their start date. But this may not be possible where the employment contract is being introduced for an existing employee.

An employer must be careful when making changes to an existing employee’s terms of employment. A fundamental change may include an alteration to an employee’s duties, reporting structure, or compensation. An employer could seek an employee’s consent to impose such a change or impose it unilaterally.

Where seeking an employee’s consent, the employer should introduce a new or revised employment agreement. For this contract to be enforceable, an employee must be provided with something in exchange for agreeing to the new terms of employment. In contract law, this is referred to as “consideration”, and it may include a raise, signing bonus, or other perks.

Where an employee does not consent to an employer’s proposed changes, there is a way to impose unilateral changes to employment. These are complex situations that an experienced lawyer should help to navigate to ensure the new employment contract is enforceable. Otherwise, an employer may be making themselves a target for a claim of constructive dismissal if employment terms are improperly altered.

Contact Us

If you an employer and are looking to introduce or revise your employment contracts, or an employee and need an employment agreement reviewed, our team of experienced workplace 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 would be happy to assist.