Anything goes in employment contracts – Beware of dangerous terms

Date: 2008
Author: Daniel A. Lublin
Publication: Metro
When it comes to employment contracts, all is fair in love and war, as pretty much anything can be incorporated into the deal.  Employees should, therefore, beware of the following terms:

  • Probationary periods.  Agreeing to a probationary period allows an employer to dismiss for reasons that would otherwise be insufficient, as long as a proper audition is given.  It needs only to show that, in its opinion, the employee was unsuitable for the position, with suitability including character, competence and compatibility.  If these considerations are fairly assessed, the employer can end the relationship with impunity by providing only minimum notice or pay.
  • Bonuses.  If tied to annual compensation and paid as a matter of course, seldom are bonuses truly optional.  Unless a contract provides otherwise, employees cannot be deprived of this pay upon termination.  And even where contracts expressly state that bonuses are not payable following termination, court cases have construed that term to mean the date of legal termination, which can be many months following the day that the employee actively ceases work.
  • Fixed term contracts.  Employees hired to complete a defined task or for a specific term, such as twelve months, are not entitled to indefinite employment.  That is, when the fixed term contract comes to an end, the employee has no right to receive severance or even to continue as before.
  • Notice of termination. Every employment contract includes, at a minimum, an implied rule that employees can only be fired with proper notice or severance.  But (and in law there is always an exception) if a contract specifically defines some lesser period, even if manifestly unfair, the employee will often be held to that term, as it is the unfortunate bargain that he or she made.
  • No constructive dismissal.  Once employment begins, significant and negative changes to the job are prohibited, without proper advance notice or employee consent.  If serious changes, such as location, pay or a demotion are imposed, the employee may reject them and sue for wrongful dismissal damages.  If, however, a cleverly drafted contract can be construed as contemplating the disputed change, the employee may have to accept it, or otherwise be without remedy.
  • Resignations.  Unless constructive dismissal is asserted, employees cannot simply pack up and leave; notice of their resignation must often be provided.  Just as employers are required to provide reasonable notice that the job will end, employees must do the same.  What is reasonable, however, is not judged on how long it would take that employee to replace his or her job but rather, how long, on an objective basis, should it take the employer to recruit the next candidate.  Where a contract specifically states the amount of notice that must be provided, follow it – or risk being sued for wrongful resignation.