It is very important to pay attention to the details in employment contracts, as these can have a significant impact if mistakes are made or terms are overlooked.
Some of the more common pitfalls are
- End dates missed – If you hire someone on a fixed term contract (i.e. May 1 to September 30) and they work even one day beyond the stated end date with no new agreement, the temporary contract becomes a permanent arrangement and you must treat the person as a permanent employee.
- Contract terms violate legislation – If any of the contract provisions are found to be in violation of the Employment Standards Act or other legislation, the entire contract could be deemed void.
- “Annual renewal” of contract – if you employ persons on one-year contracts that renew every year, it is most likely that the person would be considered a permanent employee, particularly if the job does not change and it would appear to others (customers, for example) that the employee is permanently working for you.
- Contractor vs Employee – If you hire as a “contractor” and you are not deducting statutory payroll remittances or paying vacation pay, if the person is deemed to be an employee, the employer could be faced with huge fines and costs to pay those remittances. In most cases the employer cannot take any of the owed remittances from the employee (they can begin proper deductions going forward from that point).
- Changes in status or position not reflected in contract – Be sure to pay attention to the terms of the original agreement and make amendments when necessary. If not properly defined, changes in position or terms that aren’t specifically detailed could lead to legal challenges if employment is terminated based on the original contract. Common law provisions for termination notice for more senior positions are considerably more expensive than junior positions.
- Amendments to contracts require new or improved benefits – court cases have established that when you are renewing or changing a contract for an employee, you must give them “reasonable consideration” in exchange for the new terms. “Consideration” in this context is some type of superior benefit (a signing bonus, a slight raise, more vacation, etc.) to what was in the original contract.
Employment contracts are helpful to clarify performance standards and the terms of employment but can also cause a lot of grief if not managed properly. Remember to always obtain qualified advice on the wording in your contract!