Is an Employment Contract Necessary

You don’t need an employment contract if you do not care about money. You don’t need an employment agreement if you don’t care about employment protection. Employment contract drafting is substance over form and a lot of legal issues are involved, and drafting enforceable contractual terms in an employment contract is more of an art than a science.

Why Not Having an Employment Agreement is a Terrible Idea

As an employer, if you don’t have an employment contract with your employees, they work under an implied employment contract and common law terms will be used in case of a termination without cause and termination for cause scenario, as common law is the default position. The reasonable notice required under common law is significantly longer than the statutory minimum protection guaranteed under the Employment Standards Act (ESA). However, you can’t use ESA statutory minimum unless you put the terms in the employment agreement and that the employee-to-be consent to it and signed the employment agreement. Do note that Occupational Health and Safety Act (OHSA) and the Human Rights Code (the Code) applies to any person who performs work or supplies services for monetary compensation, so you won’t be able to avoid the wrath of these statutes by not having an employment agreement. For instance, Section 9 of OHSA requires that, under normal circumstances, a joint health and safety committee be established at a workplace at which twenty or more workers are regularly employed. There is absolutely nothing to gain by not having an employment contract!!

As an employee, if you don’t have an employment contract with your employer, the common law will have to be used to determine whether you are an employee or an independent contractor. It’s risky, and there’s no guarantee that a Court of law will decide in your favour. If you are not an employee, the protections under the Employment Standards Act (ESA) will not be applicable to you. In addition, ONLY an employee can sue for wrongful dismissal and ask for reasonable notice (i.e. just compensation after termination). In other words, if you work for a company without any contract, you can be terminated at will, and you MAY NOT receive any compensation at all, unless a Court of law determines that you are an employee.

Some Other Consideration that Makes Having an Employment Contract A Good Idea

When the Employee Would be Difficult to Replace

A professional with very specific skills or an employee who has knowledge of your market and your competition would be an example of someone you might have a hard time replacing if she should suddenly leave your employ. In these cases, you would use the contract to limit the employee's ability to leave without giving you ample notice.

When the Employee Has Knowledge of Confidential Information

This might include trade secrets or knowledge of other sensitive materials. In this case, you would want to include a confidentiality clause in the contract to prevent the employee from divulging this information during and after the end of the employment.

When You Want to Avoid Getting Sued Firing Employees

The language of an employment contract should include a general description of the duties you expect the employee to perform. It should include specifics about what happens if a contract employee leaves, how long will the working notice or payment in lieu of notice be in any given situation; how about severance pay for long time service and termination for cause? You want to make sure all the key terms are reduced to writing, so there will be no surprise later on. 

When in Doubt... Hire An Employment Lawyer

Check with an employment lawyer before you have your employee sign the employment contract, please!! A poorly drafted employment contract is worse than not having one. You will be surprised at how many big companies have horribly drafted employment contract. An employment lawyer can make sure that the contract language you include is correct and sufficient. If you try to bind an employee to a term that's not supported by law, the non-competition clause, termination clause could all be voided if there's eventually a dispute.

Employment Contract FAQs:

Employment Contract FAQs
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