Canadian Employment Law Today

4 Canadian HR Reporter, a Thomson Reuters business 2015 7 common mistakes in employment agreements Avoiding these errors or omissions can save employers a lot of grief and ensure their employment agreements are rock solid BY LAURA WILLIAMS D espite the importance of properly drafted employment agreements, it's common for many organiza- tions — ranging from large corporations to small and medium-sized businesses — to either hire employees without re- quiring the acceptance of terms set out in a written employment agreement, or draft documents that are ambiguous or miss many of these key clauses. In some instances, employers realize when it's too late that their contract terms are unen- forceable — think critical considerations such as termination, workplace social media usage, ownership of intellectual property or company equipment, or post- employment obligations — exposing them to unnecessary liability, severance payments or even litigation. When properly structured, employ- ment agreements should provide value to organizations on several fronts. ey should communicate employee expecta- tions, entitlements, rules, obligations and benefits. ey should provide certainty to all parties with regards to the employ- ment relationship, protect the employer's valuable assets, modify terms implied by common law (such as reasonable notice) and allow for predictable termination costs. Anything less and an organization's contracts should be reassessed for poten- tial deficiencies, or entirely re-written. Of course, the common pitfalls and omissions don't end there. Here are seven common exposures which result from improper implementation of employ- ment agreements: Failure to provide consideration. Many employers fail to realize that each party to a contract must give and receive some- thing of value to make the agreement binding. When an employment agree- ment is presented to the employee after the employment relationship has com- menced, the employer must provide value such as a promotion, signing bonus, or an increase in salary or vacation. e contin- uation of employment, is not considered proper consideration. Without such ex- change of value, the agreement could be considered unenforceable. Improper use of fixed-term/task agree- ments. One of the key contractual over- sights that our firm encounters regularly is employers failing to provide notice upon termination in certain circumstanc- es. Under Regulation 288/01 of the On- tario Employment Standards Act, 2000 (ESA) in Ontario, for example, statutory notice is due if a fixed term of employ- ment exceeds 12 months, the employ- ment relationship ends before the end of that term, or is extended beyond 90 days past the end of that term. Employment standards legislation in most other prov- inces includes similar requirements. Another issue is the use of successive- term contracts, which include back- to-back or automatic employment re- newal clauses. Successive renewals of fixed-term contracts could be viewed as an intention to create an indefinite term contract, and could be rendered unen- forceable as a result. Lastly, many em- ployment agreements lack a defined ter- mination clause allowing for an early exit from the employment relationship. If an employee is terminated before the end of the contract's term, the employer is liable for salary and benefit payments to end of the contract term in the absence of a ter- mination clause. It's the reason why com- prehensive agreements should always in- clude provisions for earlier termination. No clause reserving right to lay off. Under common law, employers do not have the right to lay off their employees, but must instead reserve this right in their employment agreement. Otherwise, a layoff without necessary contractual clauses could trigger constructive dis- missal exposures. No clause reserving right to impose suspension. Unless their employment agreements state otherwise, employers do not have the right to suspend em- ployees due to misconduct. In a recent Supreme Court of Canada case, Potter v. New Brunswick (Legal Aid Services Com- mission), for example, the employee, Da- vid Potter, argued that a disciplinary sus- pension with pay before his return from sick leave as Executive Director of the New Brunswick Legal Aid Services Com- mission was tantamount to construc- tive dismissal. He subsequently pursued litigation against his employer. e com- mission argued that in doing so, Potter voluntarily resigned. e Supreme Court of Canada eventually found that Potter was, indeed, constructively dismissed in light of the "indefinite duration of his suspension, of the fact that the commis- sion failed to act in good faith insofar as it withheld reasons from him, and of the commission's concealed intention to have him terminated, the suspension was not authorized by his employment contract. Nor did the commission have the author- ity, whether express or implied, to sus- pend (Potter) indefinitely with pay and that suspension was a substantial change to the contract, which amounted to con- structive dismissal." e decision under- scored the need to reserve the right to impose disciplinary and non-disciplinary suspensions in employment agreements. Not providing for obsolescence. is is a particularly important consider- ation when a long-service employee has changed positions over the years since signing an initial employment agree- ment — possibly by accepting a new role, transferring departments or accepting enhanced responsibilities. Employment agreements should reflect the reality of the employment relationship and, as such, when an employee changes roles over time, employers can be exposed to CASE IN POINT: EMPLOYMENT CONTRACTS COMPREHENSIVE employment agreements are one of the simplest, yet often overlooked, tools for managing the employee relationship. When drafted properly, these documents set the terms of employment covering everything from vacation and salaries, to benefit and termination entitlements, while also clearly defining expectations on the parts of both the employee and employer. BACKGROUND

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