The Importance of Having a Written Employment Contract

A written, enforceable contract is essential when hiring. If an employee were to begin employment before signing a written employment contract, that employment relationship would then be governed by an implied verbal employment contract. This leaves the employer vulnerable to certain risks that could be avoided through an enforceable written contract that clearly outlines the terms and conditions of employment.

What Happens Without a Written Employment Contract?

In the case where there is no written contract and instead an implied verbal employment contract, an employer’s liability significantly increases. In the absence of a written employment contract, the Courts will imply reasonable notice under “common law”. Reasonable notice requires an employer to provide the employee with reasonable notice for termination when terminating without cause. If an employer fails to give reasonable notice, the employee has grounds for wrongful dismissal.

The termination notice as outlined in the ESA entitles an employee to a notice period relative to their time with the company to a maximum of 8 weeks of termination pay and, if applicable, severance pay to a maximum of 26 weeks. If there is no written contract or if the written contract is deemed unenforceable, common law comes into effect.  Common law notice is based on estimating how long it will take an employee in their unique circumstances to find their next job, which typically results in a much longer notice period than the minimum standards under the Employment Standards Act (ESA). There is no formula for common law notice as it is determined by the Courts on the merit of each case. In some cases, common law notice has been awarded for 24 months, or even longer in exceptional circumstances.

The employee may also be entitled to any other stipulations made verbally by the employer, however, due to the lack of a written agreement there exists the possibility for either party to dispute the agreed upon terms.

Important Elements of a Written Employment Contract

Written employment contracts can also expose the employer to risks if not executed correctly.  This is a common mistake by new employers who are not familiar with the liability risks, for example, if they have an employee start work prior to signing a contract.

In addition, recent decisions by Courts have shown they will not restrict their focus to whether an actual termination clause is unenforceable; they will examine all provisions of an agreement for ambiguity or where an employee’s failure to comply could be a cause for termination because it does not meet the minimum standards under the ESA.  Should a court determine that any such provision offends the ESA, it can invalidate a termination clause that would otherwise be enforceable.

If a termination clause is deemed unenforceable, then an employee may become entitled to common law reasonable notice in the event of a without cause dismissal.

The enforceability of a written contract is crucial, and even small errors in the termination clause can render the contract unenforceable in Court. Consulting a legal professional when drafting or amending a contract is strongly advised in order to prevent any errors and to protect the employer from unforeseen complications.

If an employment contract has not been updated over the course of the past 6 months, the chances are that some of the crucial provisions may not be enforceable because of recent legislation changes and Court decisions.

In the case where one element of a written employment contract is deemed unenforceable it may affect the enforceability of the remainder of the contract, even if it would have otherwise been enforceable. For example, in the 2020 case Waksdale v. Sweden North America Inc. the Ontario Court of Appeal invalidated the termination clause because the “just cause” provision was deemed unenforceable, even though the employee was terminated without cause and offered more reasonable notice than his ESA entitlement. As a result, the employee was awarded a longer reasonable notice under common law.

The team at HR Enable can help you to navigate employment contracts and ensure that your contracts remain enforceable under the current laws. We specialize in employment law and provide HR Consulting to our clients.  We have the knowledge and expertise to guide you through the elements of an appropriate and enforceable employment contract and can help you review your existing agreements. For more information contact HR Enable today at 905-483-5115.