Working Before Receiving a Signed Employment Contract
Employment relationships in Ontario are governed by employment contracts. If there is no written employment contract between an employer and employee, there is a deemed verbal employment agreement at common law.
Whether a written or verbal employment agreement governs an employment relationship can have implications on the terms of employment, including an employee’s termination entitlements and an employer’s express rights such as being able to lawfully layoff an employee.
Some employers allow employees to start working with the understanding the employee will sign a written employment contract afterwards. While this may seem harmless, it could create significant risk and uncertainty in the employment relationship that could result in substantial costs for the employer.
When Does An Employment Relationship Begin?
When an employee starts working for an employer without signing a document laying out the terms of employment it is deemed in most cases to create a verbal employment agreement of indefinite duration.
Any written employment contract presented to the employee by their employer after they started working would then be considered a new and separate employment contract.
As a result, an employer would need to provide an additional benefit to the employee as “fresh consideration” when asking the employee to sign a new written employment contract. Without this additional benefit, the new written employment contract and its terms would be unenforceable.
Fresh consideration can include a monetary bonus, a promotion, or some other benefit the employee did not enjoy as part of their employment relationship before signing the new employment contract. Fresh consideration does not include the right to continue employment with the employer or avoid some negative consequence like workplace discipline.
What are the Implications for Employers?
Many terms of written employment contracts provide employers certainty and control in employment relationship while managing its inherent legal risks. These can include but are not limited to:
- The duration of the employment relationship;
- An employee’s termination entitlements;
- Intellectual property rights;
- The protection of confidential information and other business interests upon an employee’s departure;
- The length of an employee’s probation period; and
- An employer’s express ability to layoff an employee for a given period.
If an employer’s written employment contract is rendered unenforceable for lack of fresh consideration, the employer would then not have the advantages of the written employment contract. Consequently, the employment relationship would still be governed by the original verbal employment agreement and its terms that are largely in favour of the employee.
An unenforceable written employment contract signed after an employee commenced employment could therefore result in significant damages through large severance packages owed to terminated employees or otherwise limiting the employer’s rights regarding other important aspects of the employment relationship.
What Can Employers Do To Minimize Their Risks?
Written employment contracts should always be signed before an employee starts working. If an employee already started working, an employer should provide the employee some additional benefit when asking the employee to sign a new written employment contract.
Whether seeking to hire an employee or present a written employment contract for them to sign after starting work, employers should consult an employment lawyer. Every case can turn on its specific facts, may contain additional hidden risks, and require unique solutions.
Contact Achkar Law
If you are an employer who is seeking information about an employee who commenced employment before signing an employment contract, or an employee who commenced employment and was presented with an employment contract to sign, our team of experienced legal professionals can help.