Why do employers need written employment contracts?
In today’s evolving workplace, the importance of well-written employment contracts cannot be overstated. If you’re an employer looking to protect your business, these contracts define key terms such as job responsibilities, compensation, termination clauses, and dispute resolution mechanisms, helping to prevent costly misunderstandings and legal battles down the road. In this blog, we’ll explore the importance of well-written employment contracts, what they should include, and how they can safeguard the employer.
What can go wrong if there’s no contract in place?
In a recent case from the Ontario Court of Appeal, the Court found that the employee was entitled to $1.8 million in damages for unpaid vacation, bonuses, and stock options. In particular, the Court of Appeal determined that since the employee did not have a written employment agreement with respect to the employee’s compensation, including his bonus stock options, and unused and accumulated vacation, the employer could not limit the employee’s entitlements only to the statutory notice period under the Employment Standards Act. Instead, the employee was entitled to common law reasonable notice, which is often far more generous. This case is a stark reminder that the absence of a well written contract can expose employers to substantial financial liability.
What happens if you don’t update contracts regularly?
To avoid these risks, employers must ensure that every employee has a carefully drafted employment contract. A well-written employment contract allows employers to clearly outline all key terms, including total compensation, position, job duties, and clear termination provisions that outline an employee’s exact entitlements upon termination of employment. Employees who do not have a well written employment contract limiting their entitlements to their statutory entitlements under the Employment Standards Act or the Canada Labour Code are entitled to reasonable notice at common law, which generally favours a greater severance package. Without these clauses, employers may pay costly separation packages or face greater financial exposure in wrongful dismissal claims.
Even if an employer has a written employment contract with its employees, it is crucial for employers to regularly update their employment contracts to ensure that the agreements are in line with case law and updated employment laws. Changes in compensation, promotions, or other material shifts in the employment relationship should be properly documented in an updated and signed contract. Employers who fail to revise contracts in line with legal developments or workplace changes risk having those contracts deemed unenforceable.
How can Whitten & Lublin help?
In short, the importance of well-written employment contracts cannot be overstated or ignored. The consequences for employers are costly. If you are an employer who would like to seek assistance to draft employment contracts, please contact us for further information online or by phone at 416 640 2667.
Author – Abby Leung