Know how to negotiate the best terms
When starting a new position or changing positions with the same employer, your employer may ask you to sign an employment contract. Before signing anything, learn more about employment contracts, termination provisions, layoffs (furlough clauses), non-compete agreements and non-solicitation clauses.
An employment contract is a contract between you and your employer that outlines and guides the terms of your employment and working relationship with your employer. It may include terms regarding compensation, hours of work, probation period, termination, post-employment restrictions, vacation, bonuses, and shareholder agreements. Some terms can greatly affect your employment entitlements. For instance, your employment contract could impact the amount of severance you receive or whether you can work in the same field after your departure.
What is a termination provision?
A termination provision is a section in an employment contract that typically tries to reduce your fair severance entitlement down to just your bare minimums. You may think that the Employment Standards Act (ESA) describes your severance entitlement. It does not. The ESA merely tells you what your bare minimum entitlement is, like how the ESA tells you what minimum wage is. In fact, when you start the employment relationship, you are entitled to much fairer and much more lucrative severance. Employers routinely use termination provisions to deprive employees of that fair severance and reduce it to the bare minimum. These are the most problematic parts of an employment contract and should be the first thing that you have evaluated by an experienced employment lawyer.
What is a layoff (furlough) provision?
Many employees do not know this, but it is illegal to place you on a temporary layoff, often called a furlough. The exception to this rule is if you consent to being laid off. One way that employers obtain consent is by having you sign an employment contract that permits temporary layoffs. There is often no reason to give your employer the right to deprive you of your ability to work and earn a living.
A non-compete agreement is typically a clause found in an employment contract that bans you from working for a competitor or accepting business from a former client/customer. Non-competes are presumptively illegal, and it is very hard for employers to rely on these. In most cases, you will be informed that your non-compete is illegal, and that you are free to work wherever you want if you quit or are let go.
In October 2021, the Ontario Employment Standards Act was changed so that non-competes for most employees would be automatically illegal.
There are three exceptions to this rule:
- Executives are exempt from this rule. If you are a CEO, President, COO, CFO, CIO, CMO or any other chief executive position, then your employer can include a non-compete clause in your contract.
- If you sell or lease your business or part of your business and become an employee of the business you sold, the new owner has the right to enter into a non-compete agreement with you.
- If you signed your non-compete before October 2021.
If you have a non-compete agreement that was entered into before October 2021, your non-compete is most likely still illegal.
A non-solicitation agreement is often found in an employment contract. It attempts to prevent you from contacting or soliciting clients or old colleagues, or working in the industry, after you have left your employer for a certain period of time.
Non-solicitation clauses are far more likely to be legal than non-competes. However, many non-solicitation agreements are poorly drafted, and cannot be relied upon by the employer.
What should you know before signing a non-solicitation agreement?
Things to consider when signing a non-solicitation agreement:
- Is the agreement part of your employment contract? Given a non-solicitation agreement is a “restrictive covenant”, you must agree to it before you accept the job.
- Were you forced to sign the non-solicitation clause? If you were under any form of duress such as feeling threatened about losing your job, a court will set aside the non-solicitation agreement.
- Is the clause or agreement reasonable? Because restrictive covenants have the potential to do significant harm, the courts have the power to overrule them if the restrictions appear unfair. Courts will assess the length of time the restriction applies, the geographical scope of the restriction and whether it is even necessary.
Employment contracts not only control your current livelihood but can limit your future livelihood. It is crucial that you understand what you are signing when you sign your employment contract, given most are drafted to benefit your employer. An employment contract dictates your obligations and responsibilities during and following your departure from your employer.
If your former employer is telling you, following your departure, that you are forbidden from working for competitors, or other companies in the same industry due to a non-compete agreement or a non-solicitation agreement or clause, speaking to an employment lawyer will ensure you understand your options.
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