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Anything goes in employment contracts

Whitten and Lublin | Sep 12, 2012

Date: 2007
Author: Daniel A. Lublin
Publication: Metro

When it comes to employment contracts, all is fair in love and war. Barring any illegal terms, pretty much anything can be incorporated into the deal.

Unfortunately for employees, the law provides few safeguards regarding what can and cannot be agreed to as a term of employment. As well, with the recent shift downwards in unemployment rates, employers have had to adapt, minimizing the risks of hiring transitory employees by proposing contracts loaded with language to protect them at every opportunity.

Employees should beware of the following six most dangerous terms, now appearing in more employment contracts – and court dockets:

  1. Is there a probationary period? Employers don’t just use probationary periods to assess their new recruit’s fit; setting a probationary period allows them to dismiss for reasons that would otherwise be insufficient. Although there is a recent trend requiring employers to act fairly, the employer needs only to show that, in their opinion, the employee was unsuitable for the position, with suitability including character, competence and compatibility. If these considerations are fairly assessed, the employer can end the relationship suddenly by providing only minimum notice or pay.
  2. Are oral promises replicated in the contract? As in any relationship, a certain amount of optimistic expression is normal at the outset. However, the law provides a menu of remedies for employees where employers’ pre-employment expressions were negligently made or promises never materialized. Contracts that include clauses stating that there are no collateral representations or agreements, and that the terms of the letter constitute the entire agreement, prevent employees from relying on any alleged statements made before the contract was signed.
  3. Is there a fixed duration? If the duration is not clearly set out in the contract, employment is deemed indefinite and the employee is entitled to notice of termination or pay in lieu thereof if terminated later on. Conversely, if a defined term, such as 12 months, clearly exists, the contract will expire and the job will end. Employers use these clauses to rid themselves of employees without paying severance, or to renegotiate more favourable terms moving forward.
  4. What about post-termination income? Prudent employers draft contracts that deprive employees of the right to any compensation other than severance following their termination. Without such language, courts can imply that an employee is entitled to bonuses, commissions, stock options and profit sharing, as if the employee had still been employed.
  5. Can the contract be modified or changed? Once the job begins, significant changes that negatively affect an employee are prohibited, without a sufficient warning or that employee’s consent. Courts will, however, look to the contract, and if a clause clearly provided for that change, the employee had basically already agreed to it and is left without a remedy. Properly worded contracts can even authorize employers to amend benefit plans at their discretion.
  6. What post-employment restrictions exist? An employee’s only implied duty upon leaving is to keep confidential information or trade secrets confidential – unless other specific post-employment duties or restrictions are written into the contract. If the contract is properly drafted, employers can prevent employees from working for a competitor, or soliciting clients or former colleagues.