Common (and Expensive!) Contract Mistakes

One of the most expensive areas of Human Resources that I deal with, in terms of costs to employers, is the unintentional errors in employment contract language.  These errors usually result in unexpected and sometimes very significant payments to dismissed employees.

We know that the Employment Standards Act provides for minimum termination payments, but the courts have ruled in favour of employees many times to increase these amounts based on things like the age of the employee and the likelihood of obtaining a similar job.

Furthermore, if an employment agreement is challenged in court and is ruled invalid, any terms you had in that agreement to restrict the employee in other ways, such as non-competition, can also be overturned by the court.

Here are the most common mistakes:

  1. Not giving the employee the opportunity to obtain legal advice before signing the contract. This is huge.  The employee must be given at least a week to seek this advice at their own expense. I have seen contracts where the employee was brought in on start day, given the four-page contract and told to sign before working. This could be declared “duress” in some cases and would result in the entire agreement being voided by the court.

 

  1. Not keeping track of the “end date” of the agreement. This is particularly important in fixed-term contracts, such as maternity leave coverage or seasonal/temporary help.  Should the employee work even one day past the end date of the agreement, (without a new agreement in place) they become permanent employees and any terms in the agreement are now void and they are subject to the common law precedents.

 

  1. Non-competition clauses or non-solicitation clauses that go too far in restricting the former employee’s activity. The employer could be liable for significant termination pay to cover the period of non-competition.

 

  1. Termination clauses that are not specific or clear enough, or do not restrict the employee to the ESA minimums. I have also seen termination clauses in larger companies where the employee “agreed” to not be entitled to severance pay, which in this situation was a violation of the employee’s rights under the ESA and if challenged would result in the employee being given full notice of termination and severance pay under common law.

 

  1. Hiring someone as a “contractor” when they are actually an “employee”. If this happens, the employer is on the hook, retroactively, for all statutory deductions (except income tax), vacation pay, and other benefits that would be owed to the employee.  In most cases the employer is not allowed to deduct the employee’s portions of benefits such as CPP an EI on the retroactive pay and must submit both.

 

  1. And last, not having a written agreement in the first place. While they are not “required” under law, you can see from the above issues that it is always best to have a clear understanding, on both sides, of all expectations.  Verbal agreements are just as binding as written, so as long as the employee can show that they have some sort of proof of a condition or term, the employer would be obligated to fulfill that term or condition.

 

Contact me today for help in making your employment contracts legally compliant!