Updated: Feb 7, 2020
Every employer has an employment contract with every employee, even when there’s “nothing in writing.” A well-drafted written employment contract is key to avoiding or resolving disputes throughout and at the end of the employment relationship, saving the employer time and money. However, it’s important to get the wording right; there are many legal technicalities, and courts scrutinize employment contracts closely and generally interpret them to protect employees. It’s equally important to properly implement the contract; the terms must be set at the time of hiring/start of employment, and the employer can’t unilaterally change the fundamental terms of the employment relationship unless it gives the employee prior notice or “consideration” (something of new value in exchange).
While employers should review each employment contract and make necessary adjustments for the circumstances, here are the top ten terms just about every employment contract should include.
A termination clause is intended to displace an employee’s entitlement to “reasonable notice” upon termination without cause by setting out the employee’s notice entitlement. The law generally presumes an employer can terminate a contract of “indefinite duration” (versus fixed term) without cause by giving the employee “reasonable notice,” save some statutory exceptions. But “reasonable notice” is uncertain because it’s individually assessed at the time of termination based on several factors. Employers can often rebut the “reasonable notice” presumption with an enforceable termination clause that gives certainty to employer and employee.
While it’s always preferable to make changes to the employment contract in writing, an obsolescence clause stipulates that the contract continues to apply even if the employee’s role or compensation changes. The intent of the clause is to ensure that the contract remains enforceable even if the employment relationship fundamentally changes between the date when it’s signed and the date the employment ends.
“Legalese” that can save the day, a severability clause states that any legally unenforceable term(s) of the contract are severed from it, without that severance affecting the enforceability of the other contract terms. For example, it’s been used to sever an unenforceable probationary clause and leave an enforceable termination clause standing.
Employers can often protect against financial loss with a non-solicitation and/or non-competition clause limiting an employee’s ability to compete and/or to solicit their (former) employer’s customers and employees. However, courts won’t enforce them unless the employer can prove they protect a legitimate proprietary interest and are reasonable in duration, geographic scope, and the nature of the activities prohibited.
A probationary period to determine whether the candidate is suitable for employment can be valuable, allowing the employer to terminate the employee’s employment during that period without notice or cause, though to be enforceable, the clause must comply with the minimum notice under labour standards laws.
Intellectual property (IP) and confidential information can be an employer’s biggest asset. Protect them with a protection of intellectual property, confidentiality, and non-disclosure clause that addresses who owns any IP the employee develops, defines what it covers and what’s confidential, requires the employee to acknowledge how they will or did gain it, and continues the obligation post-termination.
If the contract is for a fixed term, make that clear and specify the notice to which the employee is entitled upon early termination of the contract, or risk paying the remaining balance of the term.
An employer doesn’t automatically have cause to terminate a “moonlighting” employee. Make clear whether the employee is permitted to undertake other activities during their employment, for or without pay, without the employer’s prior consent.
Another “legalese” clause valuable in a dispute, an entire agreement clause states that the written contract is the complete contract and supersedes any prior agreements the employer and employee might have made about the employment, to mitigate against either party claiming there are contract terms in addition to those in the written contract.
A clause specifying the employee’s liability for monetary compensation is helpful if the employee breaches their confidentiality obligations (the normal court resolution). It is also important to state that this is insufficient and that the parties contemplated and agreed to an injunction (a court order to stop doing something) and/or specific performance (a court order to do something) in the event of a confidentiality breach.
To discuss this or any other legal issue, contact any member of McInnes Cooper’s Labour & Employment Law Team. Read more McInnes Cooper Legal Publications and subscribe to those relevant to your business.
This article is information only; it is not legal advice. McInnes Cooper excludes all liability for anything contained in or any use of this article. © McInnes Cooper, 2019. All rights reserved.
Amanda Nash is a labour and employment lawyer in McInnes Cooper’s St. John’s office with a particular interest in advising and representing employers in grievance and interest arbitration, collective agreement interpretation, human rights, and employment termination issues.
Contact Amanda at email@example.com or 709.724.4709.