Employment contracts

Date: June 16th, 2012
Author: Daniel Lublin
Publication: Metro

Employers must meet legal “tests”

It is one of the biggest human resource blunders in the workplace – employees’ told to sign employment contracts after their job already begins.  A recent Ontario case illustrates why.
On Anthony Fasullo’s third day of work with Investments Hardware Ltd., he found himself in a pickle. He was given an employment contract containing a vast limitation on any future severance and told to sign his name. However, Fasullo was not previously informed that he would have to sign a contract with any limitation on severance and worse, he had just resigned from another position to take this job. Therefore, his options were grim. He could sign the contract and agree to the limitation or he could refuse and potentially be unemployed. Not surprisingly, Fasullo signed his name and continued to work as before.
The legal impact of the contract Fasullo signed remained dormant until he was fired, several years later. At that time, Investments Hardware sought to enforce the contract in order to pay Fasullo only a small amount of severance.
Employees in Canada are entitled to fair severance payments upon their terminations, unless there is a contract that specifies some other amount. In order for that contract to be enforceable, however, there are a few rules. First, employees must voluntarily agree to the contract, otherwise it may be set aside. In Fasullo’s case, the implication was that since he resigned from another job to start work at Investments Hardware, he was in no position to refuse to sign the contract, since he could be left without a job.
Second, when an employee is given a contract after he or she starts a new job, the contract must provide them with something of additional value in exchange for signing the contract. Otherwise, as in Fasullo’s case, employers can impose conditions, including punitive ones, and employees are left without any leverage to negotiate. On this basis, a judge recently struck down the contract and awarded Fasullo damages for wrongful dismissal.
The human resources lesson here is clear. Employees should challenge employment contracts where the facts and circumstances present them with that opportunity. This is because courts continue to hold employers to strict rules where an employment contract provides for anything less than what is considered fair.