Three types of Employment Agreement

Documenting the specifics of employment relationship in writing is not only a legal requirement but also help you protect your business and manage relationships with employees. Different types of contract apply, depending on employment status of the individual. It’s important to have the employment status properly determined before signing contract.

Different Types of Employment Contacts

An employment contract is all the rights, responsibilities, duties and employment conditions that make up the legal relationship between an employer and employee. It includes a number of terms which, whether written down or not, are legally binding – the employer’s duty to pay the employee wages, for example.

Different types of contract apply, depending on the employment status of the individual. So it’s important to have correctly determined the employment status of the person you’re hiring before writing an employment contract. Types of Employment Contracts: Permanent employment, Fixed Term employment and Independent contractors.

A permanent contract is an indefinite contract where an employee is taken on by a company until the employee no longer wishes to work there or the contract ends in a termination of some sort.

Indefinite employment contracts apply to employees who work regular hours and are paid a salary or hourly rate. Employees on these contracts are entitled to the full range of statutory employment rights (Occupational Health and Safety Act (OHSA), Human Rights Code (the Code), Employment Standards Act (ESA), employment law Common Law legal jurisprudence).

A fixed term contract runs from an agreed start date and ends on a specified date or on the completion of a specific project ending the employment relationship, the duration of which should be agreed upon in advance. Fixed term employees are entitled to the same rights and benefits as those of permanent employees depending on the time frame of the contract length. You can’t offer them less favourable terms because they’re fixed-term.

If the employee continues working beyond the end date of the contract, but it’s not formally renewed, there is a rebuttable presumption that the employment relationship changed from one that is fixed term to one that is indefinite term, unless evidence to the contrary exists.

Employees on these contracts are entitled to the full range of statutory employment rights (Occupational Health and Safety Act (OHSA), Human Rights Code (the Code), Employment Standards Act (ESA), employment law Common Law legal jurisprudence).

But the key difference between permanent employment contract and a fixed term employment contract is the treatment of a termination. An employee for an indefinite term contract can sue for wrongful dismissal when terminated, and the legal remedy is a reasonable notice, the length of which depends on “the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant”.

A fixed term employee, on the other hand, if terminated before the expiration of the contractual term can sue for a breach of contract where the legal remedy is the balance of the term of the contract. For instance, if someone signed a 2 year contract is terminated 2 months in, the legal remedy is the balance of the term of the contract, which is 22 months, unless the employee was terminated for cause for wilful misconduct.

An independent contractor is not an employment contract at all but a contract of work, no employer employee relationship is established in an independent contractor agreement. This type of contractor is free to carry out work for more than one employers simultaneously and is not entitled to any additional benefits as provided to permanent employees.

Workers on these contracts are entitled to the statutory employment rights (Occupational Health and Safety Act (OHSA), Human Rights Code (the Code)), but is NOT entitled to protection under Employment Standards Act (ESA), employment law Common Law legal jurisprudence regarding employer-employee relationship.

Do note that you CAN’T have your employees sign independent contractor agreements to do away protection under ESA which clearly prohibits misclassification. In many employment law cases, the independent contractors in question are deemed to have been misclassified, and as such are eligible to all employment law entitlements that are reserved for employees. To address all relevant employment law issues, the following issues should be addressed in the independent contractor employment agreement: 

  1. Control;

  2. Ownership of tools & the cost of using the tools;

  3. Chance of profit / risk of loss;

  4. Economic dependency & Integration.

When in Doubt... Retain an Employment Lawyer

Check with an employment lawyer before you sign any type of employment agreement, so that you know what you are getting into and there’s no hidden surprise. When presented with an employment offer it is essential to read the contract. You should understand and be clear on the terms offered before accepting. An employment lawyer can explain to you the legal meanings of the contractual terms, as to make sure you don’t contract away or restrict your employee rights inadvertently.

Click here to learn more about employment contracts.  Click here to learn about reasonable notice.

Employment Contract FAQs:

Employment Contract FAQs
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