Protect yourself from employment contract woes!
As a business owner, one of the best tools for dealing with employees is a simple piece of paper: a written employment contract. An employment contract is a legally binding agreement between an employer and an employee.
An employment contract can save you money by:
- Outlining the terms and conditions of the employment relationship
- Providing clarity on the rights and responsibilities of the employer and employee
- Establishing clear expectations
- Minimizing misunderstandings and disagreements
A contract is also crucial to reducing the chances of a costly termination, which can be hazardous to your business.
A verbal contract can be just as valid as a written contract if it meets the general law requirements.
What makes a verbal contract valid?
- An offer and acceptance
- Consideration (an exchange of something of value; in other words, the employee agrees to work in return for wages, benefits, etc.)
- Sharing of obligations and certainty of terms
- Competency and capacity
- Legality of purpose
If the terms of a verbal agreement are changed when the agreement is put in writing, and those changes negatively impact the employee, then consideration should be provided (i.e., a benefit to the employee).
WARNING: CFIB does not recommend a Verbal Employment Contract. It can be a legally binding agreement, but it leaves too much room for misunderstanding. CFIB recommends an employment contract always be in writing. Should disagreement occur, you can point to what was agreed to rather than arguing over what each party originally understood to be the terms and conditions of employment.
Points to consider when setting up an employment contract:
Infinite versus fixed-term contract: From a termination perspective, it may generally be safer to have an infinite term contract as opposed to a fixed-term one since the courts normally (outside of Quebec) rely on the common law if there is no termination clause present when an employee is hired “indefinitely”.
- This may be less of an issue if hiring for a short-term period (e.g., replacement for mat leave), but for longer term contractual agreements (e.g., years), this again highlights the importance of having a termination clause included in a fixed-term contract.
Restrictive clauses: These clauses limit an employee's ability to compete with their employer, solicit their employer's clients, or share confidential information with others. Courts regularly throw out restrictive clauses as being too restrictive and preventing an employee from finding other work. Some provinces prohibit certain restrictive clauses, so always check provincial regulations.
If you wish to include a restrictive clause, it is strongly recommended to consult a lawyer to
- Ensure the clause is legally enforceable and the language used in the clause is clear and unambiguous, so there is no room for interpretation or confusion.
- Tailor the restrictive clause to the specific needs of the employer. Every business is unique, and the clauses in the employment contract should reflect the particular needs and concerns of the employer. A lawyer can draft clauses that are specific to the employer's industry, the role of the employee, and the type of information that the employee has access to.
- Advise you on the appropriate duration and scope of the restrictive clauses. Restrictive clauses that are too broad or that last for an unreasonable amount of time may be deemed unenforceable by a court. A lawyer can help the employer strike the right balance between protecting their legitimate business interests and respecting the rights of their employees.
Limiting termination compensation to ESA minimum: This may be possible if the contract is carefully worded with no room for misinterpretation. This can, however, be difficult and legal advice is recommended.
Termination for cause due to poor performance: This may be possible if the employer has been clear and unambiguous about employee performance expectations:
- A gap in performance should be clearly measurable, identifiable, and clearly communicated.
- Instructions on how to correct the situation should also be clearly provided, and performance during the improvement phase carefully monitored.
- The employee should be provided with the possibility to reach out for help on how to improve.
- It should also be clearly communicated that if there is no improvement, the matter could become disciplinary following a reasonable time frame (e.g., 60 to 90 days).
Template Employment Contract Available
As stated above, CFIB always recommends a written contract to form the basis of any hiring decision, and our Business Advisors have developed a simple template for you to use! CFIB members can access the template in the Member Portal. Not a member? Join today to access the Employment Contract template and many other resources.
How to adapt and use the template
The template does not include specific requirements that may be found specific jurisdictions, so you should finalize the contract with a lawyer, to make sure it meets provincial/territorial and/or federal requirements.
If you have any questions about how to adapt the template, or simply want to review it with someone, contact a CFIB Business Advisor! They can walk you through the process of making the template fit your needs.
Brought to you by CFIB’s Employee Management Central – a wealth of help, information, and resources.