In Ontario, employment contracts serve as the blueprint for the terms and conditions of employment, shaping the relationship between employers and employees. Whether conveyed verbally or in writing, these agreements typically outline crucial details such as job titles, responsibilities, compensation, obligations, and the entitlements of employees upon termination.

Many employers opt for written employment contracts to mitigate legal risks and safeguard their business interests, introducing provisions that go beyond what verbal agreements can offer. Such written agreements often include clauses that:

• Restrict an employee’s termination entitlements to the minimum set by law, like the Ontario Employment Standards Act, 2000 (the “ESA“).
• Safeguard the confidentiality of the employer’s proprietary information.
• Define the intellectual property rights associated with the business and the employer.
• Prohibit employees from soliciting or engaging in potential competition with the employer, even post-employment.

What Constitutes a Valid Employment Contract?

For an employment contract to be valid, it must encompass three fundamental elements:

• Offer: This can be a formal written offer of employment or a verbal agreement.
• Consideration: The exchange of something valuable, often occurring when the employee begins working.
• Acceptance: This can be explicit through a signed agreement or implicit by commencing work under the offered terms.

Pitfalls Leading to an Unenforceable Employment Contract

However, even with a signed agreement, contracts may become unenforceable if they lack offer, acceptance, or consideration. Additional circumstances rendering a signed employment agreement unenforceable include:

• Ambiguity, confusion, or contradictions in the contract terms.
• Signing under duress or coercion.
• Unconscionable terms.
• Violation of provincial or federal laws like the “ESA” or the Ontario Human Rights Code.
• Court determination that deeming the agreement unenforceable serves justice.

Ambiguity, or unclear language, is particularly problematic. Courts may invalidate ambiguous clauses while upholding the rest of the agreement. Clear and detailed provisions are crucial, and in case of ambiguity, courts may interpret in favour of employees.

Consequences of an Unenforceable Employment Contract

When an employment agreement or its provisions are deemed unenforceable, employers may lose significant advantages. This includes the potential elimination of a termination provision, exposing the employer to higher severance payments.

An effectively drafted termination provision can limit severance to ESA minimums. An unenforceable provision may increase severance to 26 months or more. This becomes even more complex if the agreement includes terms affecting bonuses upon termination.

The Role of an Employment Lawyer

Whether you are an employer or employee, consulting an employment lawyer is crucial. Employees benefit from reviewing the agreement and understanding termination rights. Employers should seek legal advice for proper agreement drafting, ensuring enforceability and minimizing legal risks.

Conclusion

While employment agreements, whether verbal or written, offer varying degrees of protection, signed written agreements can be deemed unenforceable for several reasons. This exposes employers to increased legal risks, particularly in Ontario, where liability may extend beyond ESA minimums. An employment lawyer’s guidance is invaluable in navigating the complexities of employment contracts, minimizing legal risks, and achieving desired outcomes in legal disputes.