In Canadian law it has long been recognized that an employment contract governs the relationship between all employees and their employers. Like all contracts, an employment agreement establishes the expectations and the intentions of the parties. While many companies today are moving towards having formalized, written employment agreements, most contracts between employers and employees continue to be verbal or implied. In these cases, employers and employees can sometimes be left with the challenging task of identifying what the terms of the contract truly are, especially when the employment relationship ends.
Putting expectations in writing at the time of hire is the easiest way to avoid this issue. In fact, we would argue that a comprehensive and professionally written employment contract can help reduce human resources related stresses, costs and risks for three important reasons :
1. Contracts Define Expectations
As the employer, a written employment contract will allow you to define the reasonable expectations of the employment relationship. For instance, if your business has client lists or the employee will be involved in developing sensitive business strategies, the employment contract can define conduct on items such as the treatment of confidential information, conflicts of interest and procedures to be followed in the event of breaches. Another important provision in an employment contract will be the termination clause, which should clearly establish expectations and obligations in the event the employee resigns or is dismissed.
2. Contracts Reduce Risk
By defining expectations which govern the employment relationship, contracts are essential in controlling human resources related risk. This will include operational risks associated with employee conduct such confidentiality, harassment or conflicts of interest, but also potential risks evolving from employment breakdowns. By defining the terms of employment, employers can take much of the guesswork out of workplace dismissals and can pay out severance packages as required under the employment contract. Provided the terms of the contract are being respected, the likelihood of litigation and other conflicts can be minimized.
3.Contracts Limit Liabilities
It has long been recognized in Canadian employment law that employers have a duty to provide employees with reasonable notice of termination. With implied or unwritten contracts, reasonable notice can amount to several months’ of wages depending on the employee’s age, tenure, position, education and a host of other factors. One of the primary benefits of having a written employment contract is the ability to expressly modify what the employee can expect in the event of a termination without cause. This means that provided the written employment contract does not go against employment standards, the Human Rights Code or other employment laws, in most circumstances the contract can define or limit what an employee is entitled to receive upon termination. For employers, this can significantly reduce the employer’s potential liabilities.
Employment contracts should be tailored to the position and the needs of the employer. For this reason, they can range from a two page offer letter signed by the employee to a comprehensive and detailed contract complete with a non-compete agreement and a confidentiality agreement.
For more information on employment contracts or to have a tailored agreement prepared for your company, contact a lawyer specializing in employment law.