There is one area of law where employment law specialists truly distinguish themselves – drafting employment agreements. It is one of the single most common requests we receive from our employer clients. Companies want simple, straightforward employment agreements that limit their liability, especially upon termination of employment.
Unfortunately, as any employment lawyer will tell you, drafting an enforceable employment agreement is easier said than done. The case law changes rapidly. By our estimate, a majority of the employment agreements drafted before 2017 would now be unenforceable, including those drafted by competent lawyers.
How to future-proof employment agreements
Employment agreements (and especially employment termination provisions) must be drafted with an eye to where the law is – and where the law is going. Recently, the Ontario Court of Appeal made an unprecedented decision holding that, in order to be enforceable, a termination clause cannot categorically deny an employee, their minimum ESA entitlements in the event of a termination for ‘just cause’. See our previous blog: Ontario court strikes down most employment agreements. The court’s decision has sent many employment lawyers scrambling to update their clients’ employment contracts.
However, the decision did not come out of nowhere. Although courts had previously rejected similar arguments, the elements of the argument existed in the case law for years, waiting to be pieced together by enterprising Plaintiff counsel. This is why, for the past couple of years, we have been drafting employment agreements with an eye to these potential outcomes. We have not only mitigated risk for our clients but, we have saved them money by not requiring contract updates every time the case law takes a turn (which happens frequently).
How we future-proof our contracts
The case law is clear – agreements that could violate the Employment Standards Act, 2000 (the “ESA”), are null and void, and cannot limit an employer’s liability for wrongful dismissal upon termination. The Employment Standards Act, however, is a long and complex piece of legislation, and how this principle works in practice is still subject to constant debate. Some bases for invalidity are well-trodden ground, while others have yet to be tested.
Here are some of the potential, untested vulnerabilities that we are consider in “future proofing” our employment contracts:
1. Contracts that allow for termination “for any reason”
Many contracts purport to allow the employer to terminate the employee “for any reason”. Arguably, this represents a violation of the reprisal provision of the ESA, which prohibits any employer from dismissing any employee for seeking enforcement of the ESA, among other reasons. Contracts that allow employers to terminate employees “for any reason” have a strong potential to be deemed null and void.
2. Contracts that fail to account for mass termination provisions
Many people – even experts – mistakenly believe that ESA notice is always confined to about 1 week per year of service, up to a maximum of 8 weeks, and that severance is only payable to employees with 5 or more years of service. This is not the case. The “mass termination” provisions of the ESA provide for special notice of up to 16 weeks, and severance, in the case that 50 or more employees are terminated in short succession. Failing to account for this possibility (even for a small employer) could invalidate the entire termination provision in an employment contract.
3. Contracts that prohibit payment of bonuses post-termination
Many contracts seek to prohibit the payment of bonuses to employees who have been terminated. However, the ESA requires that terminated employees are entitled to certain bonuses payable during the minimum notice period. Therefore, a provision that categorically prohibits the payment of bonuses post-termination may be completely invalid.
Most lawyers can draft employment agreements that abide by the current case law. However, future-proofing an employment agreement is a much more difficult task and, requires a deep understanding of how the law works – not only what the law says. Contact the employment law experts at Hyde HR Law today for help future-proofing your company’s employment contracts.