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The importance of a well-crafted employment agreement

purple-pageDespite being one of the most basic and fundamental legal protections employers can have, many employers do not use written employment agreements when they hire new employees. A well-crafted employment agreement sets out the expectations of the employer and employee at the beginning of the employment relationship and helps to prevent future litigation.

Many lawyers will tell you that you should always use employment agreements. I fall into this category of lawyer. An employment agreement at the beginning simply avoids a lot of misconceptions, misunderstandings and problems later. However, it is crucial to make sure the agreement you plan to use is actually enforceable. For instance, an employment agreement that does not even provide the basic minimum standards outlined in the Employment Standards Act is not going to work.

Similarly, adding terms after the agreement has been accepted will likely pose problems because of the lack of consideration (providing something in exchange). If you want a term in the agreement to be valid, you must add it at the time of hiring before the employee starts to work, or provide something in exchange if the term is added after the agreement has been concluded.

Likewise, restrictive covenants must be reasonable with regards to time, scope of activities and geographic areas. For example, an anti-competition clause that prevents a departing employee from working anywhere in the province doing anything related to your business for 10 years would likely be struck down and not enforced.

In addition, it is important to understand that the complexity of employment contracts varies, depending on the position you are trying to fill. For example, a low-level salaried position may only require an offer of employment letter; on the other hand, an executive or senior-level manager may need to sign a complex legal contract containing many more provisions. Most times, the position falls somewhere in the middle, and may only require an informal letter of agreement.

With respect to the more complex contracts, it is strongly recommended that employers retain legal counsel to decide on how to present tricky clauses involving stock options, termination with and without cause (including notice, severance and benefits that continue during the notice period), bonuses (including which bonuses will continue to be paid out during the notice period), non-competition and non-solicitation, confidentiality, conflicts of interest, and other such topics.

Christina Catenacci
First Reference Human Resources and Compliance Editor

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Christina Catenacci

Christina Catenacci, BA, LLB, LLM, was called to the Ontario Bar in 2002 and has since been a member of the Ontario Bar Association. Christina worked as an editor with First Reference between February 2005 and August 2015, working on publications including The Human Resources Advisor (Ontario, Western and Atlantic editions), HRinfodesk discussing topics in Labour and Employment Law. Christina has decided to pursue a PhD at the University of Western Ontario beginning in the fall of 2015. Read more
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