It seems a bit unfair to expect you to master the intricacies of employment contracting. After all, most HR directors don’t go to law school. And getting a good lawyer will set you back about $450 per hour. To level the playing field, Insider super-correspondent, Sheryl Smolkin, sat down with one of the country’s top employment lawyers, Arleen Huggins, a partner with the Toronto firm of Koskie Minsky LLP, to discuss the practical challenges HR faces in employment contracting.
The Contracting Process
Question 1: WHO should be asked to sign a contract, all employees or just ones in particular positions or levels?
Answer: Contracts are most important for supervisory, managerial, executive and other personnel who may otherwise qualify for common law notice (which is more generous than employment standard notice) upon termination. Although generally advisable for all new employees because they provide certainty for the future, with other employees, a letter of hire may be enough.
Question 2: WHEN should employees be asked to sign their employment contract—is having them sign on the first day when they get their benefits information advisable?
Answer: No. The contract should be executed by both sides before the employee starts the job. Offers of employment, verbal and written, should be conditional upon the employee’s executing the employer’s written employment contract.
The Terms Of The Contract
Question 3: WHAT should an employment contract cover?
Answer: It should address all the key terms of employment, including duties and responsibilities, duration of employment and, of course, compensation. It should also explain the employee’s rights upon termination for and without cause, due to disability and upon the employee’s resignation.
Question 4: What should the contract say about DURATION?
Answer: Stipulate in the contract that the agreement remains binding and effective after changes in position, title, compensation, etc., regardless of how significant changes are.
Question 5: Are PROBATIONARY PERIODS for new employees automatically assumed?
Answer: No. To make employment probationary you need to expressly state this in the contract. But you can’t take away the probationary employee’s right to notice provided for under employment standards law. So, for example, in Ontario, an employee who gets terminated after working 3 months gets ESA notice even if the contract makes the employment probationary.
Question 6: What is COMMON LAW NOTICE?
Answer: Common law basically means the law that applies absent a statute like the ESA or the terms of a contract. Common-law notice is in addition to statutory ESA notice; and it’s more generous. Employees are entitled to receive common-law notice unless the contract has a termination clause that specifically says otherwise.
Question 7: Are EMPLOYEE POLICIES dealing with issues like sexual harassment, workplace violence, absenteeism, etc. considered part of the contract?
Answer: Not if you don’t set things up this way. To make policies contractual, you should refer to them and include a provision in the contract requiring the employee to abide by them. In addition, ensure the employee acknowledges receiving copies of the policies.
Question: So this means that violating an employer policy is a contract violation?
Answer: Yes. It’s also important to include a provision that gives you the right to amend, alter, change or revoke any policies, including any group insurance policies that provide benefit coverage to the employee, on reasonable notice as you determine.
Question 8: Wouldn’t these changes make an employer susceptible to CONSTRUCTIVE DISMISSAL?
Answer: They could. So, the contract should also state that employer changes to employment policies or group insurance policies don’t constitute constructive dismissal or breach of the contract.
Termination Clauses–For Cause
Question 9: What are the key elements of a FOR-CAUSE TERMINATION clause?
Answer: We all know that employers have a general right to fire without notice for just cause. The issue that arises is over which kinds of infractions constitute just cause. That’s why it’s advisable for employers to spell out in the contracts which violations they deem serious enough to be just cause. A court may not necessarily agree; but it certainly helps the employer’s case that it found the infraction serious enough to include in the contract and bring to the employee’s attention before he started work.
Question: I recall a case where an employer who had just cause for termination and thus wasn’t responsible for common-law notice still had to pay $25,000 in ESA severance.
Answer: Look, I know these terms sound confusing. The basic point your readers need to understand is that there are 2 kinds of cause; or, to state it technically, the ESA definition of “cause” is different from “just cause” at common-law. The former requires a wilful, deliberate type of conduct. It’s important to deal with both of these in the contract. The case you mention is a perfect illustration of dealing with only common law just cause. The employer might have avoided ESA severance by stating in the contract that specified infractions constituted not only just cause at common law, but also cause for dismissal under the ESA.
Termination Clauses–Not For Cause
Question 10: What, if anything, should the contract say about NOT-FOR-CAUSE TERMINATION?
Answer: First, employers need to understand that they can’t contract out of their obligation to provide notice or wages in lieu, and other payments required by the province’s (or federal) ESA in a not-for-cause termination. But what the employer can do is limit employees terminated without cause to ESA notice, i.e., take away their right to common-law notice.
Question: Will courts enforce a clause limiting employees to ESA notice if they’re terminated without cause?
Answer: Yes, they will—as long as the agreement is clear and is contained in the employment agreement the employee was offered and signed before being offered employment. Such clauses are even more effective when they’re paired with the clause we mentioned earlier that says the contract remains effective notwithstanding the duration of the employment and whether positions change over time.
Question: Is limiting employees to statutory notice for termination without cause always advisable?
Answer: No. Employment contracts are driven by business considerations and in many cases, employers will give employees more generous notice than the ESA requires. But even in such cases, you want to establish some limits by setting a maximum notice period, e.g., via an escalation clause that increases the notice amount based on the employee’s service. This way, you don’t have to revise your contract from time to time as the employee’s employment duration increases.
Question 11: What OTHER TERMINATION ISSUES should employers address?
Answer: One of the key ones is the elements of compensation in addition to base salary. At common law, all of these elements are payable upon termination—unless you specifically exclude them. Think about it. This means that an employee would be entitled to the bonus she’d have otherwise earned during the notice period unless the contract specifically excludes it. Another item to address is benefit duration, particularly for disability coverage to the extent a terminated employee is eligible for benefits beyond the prescribed ESA notice period.
Question 12: With all of the recent economic concerns, how would you recommend that employers handle TEMPORARY LAYOFFS?
Answer: Legally, the ground rules of temporary layoffs are established in the ESA. If the layoffs are to union employees, you must also abide by the rules of any collective agreements that apply. With non-union employees, it depends on what, if anything, the employment contract or employee manual says. Some contracts or manuals give the employer the specific right to effect a suspension with or without pay, e.g., for progressive discipline or in response to an economic downturn. But if the employer directs an employee not to attend work and there’s no such provision like this, the employee can view it as a termination at common law, and the employer must pay notice due on termination.
However, even if the contract or employee manual does provide for temporary layoffs, the ESA still applies. In Ontario, a layoff for longer than 13 weeks in any period of 20 consecutive weeks is deemed a termination and the employee is entitled to ESA notice and severance pay. This is extended up to 35 weeks in any period of 52 consecutive weeks if the employer continues the employee’s compensation or benefits. No employee can be laid off, even with pay or benefits, for 35 weeks or longer without it being deemed as a termination for ESA purposes. Of course, each jurisdiction has slightly different temporary layoff rules in its own ESA.
Question 14: What is a company’s exposure to liability for DISABILITY BENEFITS IN THE NOTICE PERIOD? Recently, there have been some big awards to employees who became disabled during the notice period. In one case, a company had to pay $146,000 in disability benefits to a terminated employee who became disabled during the notice period after his disability coverage was cut off. How can a company protect itself?
Answer: The case you’re referring to is Brito v. Canac Kitchens,  O.J. No. 1117, Feb. 18, 2011, and it rang alarm bells within the employer community. Employers can protect themselves by including in the employment contract a termination provision that specifically acknowledges that the employee’s disability coverage will end at the end of the ESA notice period and have the employee promise not to hold them liable for any disability or any claims for loss of benefits, etc.
Question: Do you think a court would enforce a clause like this?
Answer: No case like this has ever arisen in Ontario, at least to my knowledge; but I think the clause would be upheld if it was contained in an employment contract signed by an employee before accepting employment. If a clause like this weren’t enforced, it would create a huge liability for employers in the form of damage awards far in excess of payment in lieu of notice, as in the Brito case.
Sheryl Smolkin, is a lawyer/writer/editor, who can be contacted at her website, www.sherylsmolkin.com