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The pitfalls of the modern employment contract

It’s possibly the worst fraud in workplace law – corporations, withexpensive lawyers and deeper pockets, insisting that employees signone-sided contracts that reduce their legal rights.

It’s possibly the worst fraud in workplace law – corporations, with expensive lawyers and deeper pockets, insisting that employees sign one-sided contracts that reduce their legal rights. And employees, without bargaining power or an understanding of the law, often don't realize their interests have been undermined.

The landscape wasn’t always tilted. Employees used to work mostly without contracts, based on a handshake or a simple offer letter that only specified the basics: position, compensation and duration.

But, as a function of learning from past mistakes, employers woke up and started sharpening their pencils: why not prevent expensive lawsuits, exorbitant severance packages and competition from former employees, all with a single contract? The result is the modern employment contract, replete with employer-friendly terms. Employees now unknowingly agree to be dismissed with minimum notice, demoted, banished to far away jurisdictions, see their salaries slashed, prevented from competing with their employers following their departure, and to have promises broken at their employer's pleasure – all with legal impunity.

Given these contracts, beware of the following perilous terms:

Probationary periods: Employers don’t just use probationary periods to assess their new recruit’s fit; setting a probationary period allows them to dismiss for reasons that would otherwise be insufficient. The employer needs only to show that, in its opinion, the employee was unsuitable for the position. If these considerations are fairly assessed, the employer can end the relationship suddenly by providing only minimum notice or pay, or often less.

Termination clauses: Without any language surrounding termination in the contract, employees are entitled to reasonable notice of their dismissal, based on how long it would take to find another job. However, if some other amount is stated in the contract, it will usually provide for less than what’s fair.

Contractual changes: Can the contract be modified or changed? Once the job begins, significant changes that negatively affect an employee are prohibited, without a sufficient warning or that employee’s consent. Courts will, however, look to the contract, and if a clause clearly provided for that change, the employee had basically already agreed to it and is left without a remedy.

Post-employment restrictions: An employee’s only implied duty upon leaving is to keep information or trade secrets confidential, and perhaps to compete fairly, unless other specific post-employment duties or restrictions are written into the contract. If the contract is properly drafted, employers can prevent employees from working for a competitor, or soliciting clients or former colleagues upon their departure.

Post-termination income: Contracts can deprive employees of the right to any compensation other than severance following their termination. Without such language, courts can imply that an employee is entitled to bonuses, commissions, stock options and profit sharing, as if the employee had still been employed.

What should employees do? First, review any new contract with a lawyer and don’t be reluctant to renegotiate terms. Second, challenge the enforceability of these contracts where the facts present that argument. I have won in court by raising the inference that a contract was signed without proper consent – such findings are not exceptions.

Daniel A. Lublin is an employment lawyer focusing on the law of dismissal. He can be reached at www.toronto-employmentlawyer.com

 
 
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