Employee Agreements

Employers need to sweeten the pot if they
want to add one after the fact.

Howard Levitt captured this topic perfectly. Mr. Levitt is a senior partner of Levitt & Grosman LLP, employment and labour lawyers.

Too frequently, new business owners, as well as companies large enough to know better, request employment contracts for employees who have already started working at the company.

And that’s a problem.

An employment agreement is unenforceable if it originates after the commencement of employment or once the parties have come to terms of  employment — even orally.

Without an enforceable agreement, an employer may be liable for substantial severance payments, sometimes even for short-term employees.  However, damages for wrongful dismissal are not the only issue employers wish to limit through such agreements. Non-solicitation and non- competition clauses and the right to make changes in job functions, positions and salary without triggering a constructive dismissal, can also find their way into employment contracts.

Like a prenuptial agreement, a contract may dampen the initial ardour but the protections employers gain by stating the expectations upfront are worth it should the relationship fail.

If the window of opportunity for signing in advance is gone, an employer still has some options, including providing the employee an additional benefit for agreeing to the written terms.

This past November, Ontario’s highest court decided a case where an employer, Hostopia.Com Inc., attempted to introduce a new employment agreement nine-months after Sean Holland had begun working for it. This new agreement restricted Holland’s termination entitlements to the statutory minimums set out in the Employment Standards Act. At the time of hire, Holland had signed an offer letter with no such reference.

Since the employment agreement introduced a new material term, the court determined that, without an additional benefit granted to Holland in return for signing, the new employment agreement could not displace the employment terms already established. As a result, Hostopia was required to pay Holland eight months salary.

As long as an employee receives a new benefit for signing, a written contract may be signed after the fact. The additional benefit need not be salary. For example, the employer can offer greater job security, an improved bonus structure, or a promotion. To make the contract valid, the incentive must be an advantage over and above what the employee receives.

Employment agreements almost always favour employers. Highly prized executives with the bargaining power to command terms exceeding their common law rights are the exception. For that reason, I discourage most employees from requesting employment contracts.

But there still may be benefits that accrue to an employer from unenforceable contracts. They may act as a deterrent. After all, for a contract to be deemed unenforceable, the employee must be aware of that and be prepared to challenge it.

So, do you have Employment Agreements in place?  Thinking of adding one? Do your homework-  or call Sarkany Management.  We’d love to help.