A recent Ontario case provides a good reminder of the importance of a clear and thorough employment contract. In the case, an employee with eight months’ service claimed he had a five-year fixed term contract and sued for more than four years of lost wages.
The parties had negotiated the employee’s move from Vancouver to the Toronto to work in the employer’s jewelry store. The parties discussed the employment terms, which the employee alleged included the five year guarantee. The employer then put the offer in writing, but made no reference to a fixed period. The employee said he followed up over the phone, asking about the five year term and was told that he would be “guaranteed”.
After moving to Toronto, the employee asked the employer to sign a letter and a new contract which stated that he had been guaranteed five years’ employment. The employer understood that these documents were intended to help the employee secure a mortgage, and signed both.
A little later, the employer learned that the employee was pursuing employment with another store. The employer was upset and dismissed the employee. The employee then sued to enforce what he argue was a five year contract.
After seven days of trial, the Court sided with the employer. In a bit of a twist on the typical case, the Court held that the employee had attempted to take advantage of the employer.
The Court ruled that the documents the employer signed to help with the mortgage were not enforceable employment contracts. However, since the employment agreement did not specify entitlements on termination, the employer was ordered to pay the employee two months of pay in lieu of notice. Costs have not been decided.
Best practices for employment contracts
While this case is a bit unique, it demonstrates some best practices to keep in mind:
- Ensure that the contract is signed before the employee starts work
- Ensure the employee has had the opportunity to consult a lawyer and ask questions
- If there have been negotiations with the employee, include a term in the contract stating that it replaces and supersedes all previous discussions and agreements between the parties. The contract should also provide that it can only be modified by the parties in writing
- If the employee takes on a new role, consider having the employee sign a new employment agreement for that position. Alternatively, the original agreement should provide that it (including the termination provision) applies regardless of changes to the employee’s role over time
- Include a clear termination provision that sets out the employee’s entitlements if terminated “without cause” in the future. This must meet or exceed minimum statutory standards for notice, pay in lieu, benefits, and severance (if applicable)
By following these practices, employers can reduce the risk of a claim and their exposure to costly litigation.