Work: Tips for Newcomers on Employment Contracts

by Jack Zwicker BA, LL,B., LL,M.

If you are considering applying for a job as an employee of a firm, whether large or small, there are a number of issues you need to think about. And the reason for this is that the laws governing employment are complex and are based both on statutes passed by the legislatures of Canada’s ten provinces and three territories, and on precedents developed by our courts of law.

Across Canada, provincial legislation provides employees with minimum levels of protection relating to the length of the work week; calculation of overtime pay; entitlement to statutory holiday and annual vacation pay; pregnancy and parental leave; emergency leave to care for close relatives; and length of notice in case of layoff or termination. For example, in Ontario, the Employment Standards Act empowers a Ministry of Labour board to inquire and adjudicate any claims made by employees for breach of the provisions of this legislation.

In addition to making damage awards in favour of employees, this Board can also levy fines on employers who breach their duties under this Act.

Despite the increased levels of protection that employment standards laws have afforded to employees over the last twenty years, provincial laws do not deal with many of the important issues that should be addressed by prospective employees in their negotiations with an employer. For example, employees taking positions with large organizations need to consider signing agreements that provide detailed job descriptions. And the reason for this is that as an organization grows, employees’ duties need to be more carefully defined so as to protect them from conflict with other staff members and with senior level managers.

As well, detailed employment agreements provide termination clauses that specifically define grounds for termination and obligate the employer to provide the employee with a review process that leads to constructive criticism. These kinds of processes allow an employee to improve performance which helps to reduce the risk of termination.

Grounds for termination typically are dishonesty; refusal to accept direction from superiors; general incompetence; and persistent drunkenness and/or absenteeism. From the very earliest days, Canadian courts have treated employees relatively generously by shifting the burden to employers to prove cause for termination. As well, the length of severance pay that courts typically award to employees, especially over the last twenty-five years is generous when compared with the decisions of courts in other jurisdictions such as the United States of America. For example, Canadian courts regularly award as much as 18 to 24 months of severance to senior level managers with lengthy service in large Canadian companies.

With these court decisions in mind, lawyers who practise in this field insist upon preparing or reviewing formal employment agreements that set out the precise formula for calculating the compensation an employee is entitled to receive should termination take place ‘without just cause’ based upon an agreed period of severance. And in addition, any benefits the employee was entitled to such as pensions, life insurance, disability insurance, health and disability benefits, use of company cars, and job relocation and counseling services are usually included as part of a package along with severance.

In an economy whose service sector is growing, the skill and knowledge that employees acquire on the job is a marketable asset they can take to their next job. It is for this reason that employers, especially in large sophisticated businesses, generally insist upon their new employees signing detailed ‘non-competition’ and ‘non-solicitation’ agreements. Non-competition agreements forbid a former employee from establishing or being associated with a similar business that has the potential to draw away business from the employer’s customers within a defined geographical territory, for a specified period. Because of the inherent power imbalance between employers and employees, Canadian courts generally do not enforce non-competition covenants if they tie up an ex-employee for more than one year.

The courts are somewhat more generous to employers in enforcing non-solicitation agreements whose purpose is to prevent an ex-employee from using aggressive marketing tactics to draw customers away from that employer and from attempting to hire away other employees.

Often, these agreements are signed as ‘side agreements’ along with the ‘main employment agreement’. It is not unusual for these side agreements to be updated and for existing employees to be asked to periodically re-sign them.

Signing these non-competition and non-solicitation agreements can have the effect of shutting a former employee out of the labour market for a significant period. So it is a good idea to consult an experienced lawyer who can review these agreements with you before you make any commitments.

Jack Zwicker is a business and real estate lawyer, negotiator, and lecturer, and practises in Markham, Ontario.

CNM