Author: Daniel A. Lublin
Contract significantly limited employee’s rights
It’s possibly the biggest mistake an employee can make: requesting a written employment contract or worse, agreeing to one without understanding its terms.
How do these contracts affect employees?
When Morris Wernicke agreed to join Altrom Canada Group in 1997, he also agreed to a written employment contract. Wernicke, a chartered accountant, carefully read the contract and even sought the advice of his lawyer before agreeing to its terms.
The contract contained a clause that would permit Altrom to terminate Wernike with the greater of 30 days’ notice or the minimum amount he was supposed to receive under provincial legislation and a clause that the contract would continue to apply even if Wernike’s job later changed.
A few years later, Wernike was promoted from controller to chief financial officer and given additional responsibilities, including oversight of human resources matters. He became more familiar with employment law, preparing the company’s contracts and even attending legal seminars on this topic. Although Wernike’s job continued to evolve over time, a new employment contract was never prepared.
When Wernike’s position was eliminated in 2009, he was offered six months’ severance. However, after 12 years of employment in a very senior role, Wernike thought that he was entitled to much more.
At a recent trial in British Columbia, the company defended the case by arguing that Wernike’s original employment contract for the controller’s position applied when he was terminated from a more senior role almost 12 years later. The court agreed. Although the contract significantly limited Wernike’s entitlement to severance, the court was not prepared to set it aside. Wernike knew what he had agreed to when he started work and his job did not change so dramatically that the contract did not apply when he was later let go.
Without an employment contract, the law will imply a number of employee friendly terms. The right to termination only with reasonable notice; the right to ensure that fundamental terms, such as salary and position are not unilaterally changed; and a right to compete with ex-employers following departure are a few rights that simply exist even without a contract stating it is so.
Employers and employees can agree that these ‘implied rights” will not apply by agreeing on other written terms. However, since employers regularly draft these contracts in their favour, employees should carefully consider what they are agreeing to or whether they should agree to a contract at all.