When is Signing a New Employment Contract Unenforceable?
In Ontario, employment contracts define the conditions of employment and regulate the relationship between the employer and the employee. They can be verbal or in writing, but they usually dictate an employee’s title, duties, salary, obligations, and entitlements upon termination.
Many employers have their employees sign written employment agreements to minimize their own legal risks and provide protections for their business that are not available in a verbal employment agreement. For example, many written employment agreements include terms that:
- Limit an employee’s termination entitlements to the bare minimum guaranteed by law, such as the Ontario Employment Standards Act, 2000 (the “ESA”);
- Protect the employer’s confidential information;
- Outline the intellectual property rights of the business and the employer; and
- Prohibit an employee from soliciting or potentially competing with an employer, even after the employment agreement ends.
What is required for an employment agreement to form? What can render a signed written employment agreement unenforceable? What are the consequences of an unenforceable written employment agreement? This article will answer all these questions, and explain how an employment lawyer can help.
What are the Basic Requirements for an Employment Contract?
Like any other contract, employment agreements must have the following basic elements:
- Offer;
- Consideration; and
- Acceptance.
Offer is as simple as receiving an offer of employment, whether verbally or in writing. Commonly, employers send the prospective employee a written “Offer of Employment” laying out the basic conditions and terms of employment. An employer may also send a formal written employment agreement for the employee’s signature as part of the offer.
An employee can expressly accept an employer’s offer of employment formally with a signature or otherwise in writing, and impliedly by starting to work for the employer on the same terms offered. Acceptance can occur at the same time as consideration, which is an exchange of something of sufficient value to render the contract legally binding.
Consideration in a new employment contract is typically exchanged when the employee starts working for an employer. Where an employer is offering an employee a new contract of employment while they are already employed, an employer must provide a benefit to the employee that they were not already enjoying as part of their previous agreement. This can include a signing bonus, more vacation time, an increase in salary, or other beneficial terms.
What Makes a Signed Employment Contract Unenforceable?
All employment contracts, whether verbal or written, may become unenforceable and non-binding on the parties where an offer, acceptance, or consideration is missing. Even if a written employment agreement is signed, if the employee does not receive something of value or start working, the employment agreement is arguably unenforceable against the employee.
There are other circumstances where an employee’s written and signed employment agreement may be unenforceable altogether or at its specific provisions. Some examples of such circumstances include:
- Where the signed employment agreement or its terms are ambiguous, unclear, or contradictory;
- Where the signed employment agreement was signed under duress, or through coercion;
- Where the signed employment agreement or its terms are unconscionable;
- Where the signed employment agreement contains terms that do not comply with provincial or federal laws, like the “ESA” or the Ontario Human Rights Code (the “Code”); or
- Where a Court otherwise determines it is in the interests of justice to deem a signed employment agreement unenforceable.
Ambiguity is another way of saying “it is confusing”. This commonly occurs when one or more provisions in a contract are unclear and can have alternative interpretations that contradict one another or lead to a contradictory result.
An employment contract should have clear and detailed provisions. When there is ambiguity, Courts may only invalidate the ambiguous clauses to uphold the rest of the agreement. In many cases, courts will interpret ambiguous clauses in employment contracts to the benefit of employees to the advantage of employees.
The ESA regulates the workplace and outlines minimum standards employers must respect. Contract terms in an agreement that attempts to “contract out” of these minimum standards can result in a signed employment agreement as a whole or specific provisions being deemed unenforceable. Employers have the option of conferring a greater benefit than what is offered by the ESA, but not less.
What are the Consequences of an Unenforceable Contract?
As mentioned above, written employment agreements allow employers to minimize their risks and protect their business interests more than verbal employment agreements. Where a signed employment agreement or specific provisions in that agreement are held to be unenforceable, the employer loses those advantages.
One of the most common and costly consequences of an unenforceable signed employment agreement is eliminating a termination provision. Where a Court holds a termination provision or the agreement it is contained in is unenforceable, the employer opens themselves to potentially paying significant amounts for the employee’s severance.
If drafted properly, a termination provision can limit an employee’s entitlements to only the ESA minimums, which can be as high as 34 weeks of regular wages owing to the employee. Where a written employment agreement or its provisions are unenforceable, the maximum severance can go as high as 26 months and potentially more.
This problem can get worse if an employee’s written employment agreement had other terms limiting an employee’s entitlements regarding their bonus upon termination. Without an unenforceable provision preventing an employee from receiving their bonus for the length of their notice period, the employee could be entitled to a lot more than just their base pay as part of their severance.
Whether you are an employer or employee, it is best to speak with an employment lawyer promptly when it comes to your contract. Employees can benefit from a review of the employment agreement they are being asked to sign, and understanding their legal rights upon termination. Employers should consult with a lawyer to properly draft an employment agreement, and ensure it is enforceable. There is no substitute for tailored legal advice to understand your legal rights, obligations, and steps to minimize your legal risks.
Conclusion
Employment agreements can be verbal or in writing. A signed employment agreement typically contains greater protections for the employer to minimize their legal risks in the employment relationship. However, a signed written agreement can be determined to be unenforceable for a variety of reasons, including ambiguity and failure to comply with applicable federal and provincial laws.
Where an entire written employment agreement is unenforceable or its individual provisions are held to be unenforceable, an employer may be exposed to greater legal risks. In Ontario, the most common kind of liability owes an employee more severance than the bare minimum under the ESA upon termination. This could be the difference between owing 34 weeks of pay to an employee and 26 months of pay for termination without cause!
An employment lawyer can help both employers and employees understand their rights, obligations, and legal options in any given situation. The sooner you consult with an employment lawyer, the sooner they can help minimize your legal risks and help you get the results you want in your legal dispute.
Contact Us
If you are an employer or an employee needing assistance with an employment agreement or any stage of a workplace dispute, 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 will be happy to assist.
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