How employment contracts protect your bottom line: Q&A

In follow up to our webinar, Legal Peace of Mind: How Employment Contracts Protect Your Bottom Line, featuring LawVo™, we've answered the most frequently asked questions about employment contracts.  

Is a letter of offer the same as an employment contract?  

A letter of offer and an employment contract are related but distinct documents in the hiring process.  

A letter of offer is typically the initial document provided to a candidate who has been selected for a position. It outlines the basic terms and conditions of the job offer. An employment contract is a more detailed document that formalizes the employment relationship between the employer and the employee. 

The letter usually includes key details such as the job title, start date, salary, work location, and any conditions of employment (e.g., background checks, reference checks). The contract includes comprehensive terms and conditions of employment, such as job duties, compensation, benefits, termination provisions, confidentiality agreements, non-compete clauses, and other legal obligations. 

The letter sets out the offer's terms; it is generally less comprehensive than an employment contract and may not cover all aspects of the employment relationship. The contract, however, is a legally binding agreement that both parties sign, outlining their rights and responsibilities. 

The candidate's acceptance of the letter of offer can indicate their intention to enter into an employment relationship, but it may not constitute a binding contract on its own. An employment contract is intended to be enforceable in court, providing clarity and protection for both parties. 

While a letter of offer can serve as a precursor to an employment contract, it is advisable to follow up with a formal employment contract to ensure all terms are clearly defined and legally enforceable. 

What is consideration?  

In employment law, "consideration" is about ensuring there's a fair exchange between you, as the employer, and your employee when forming or modifying a contract. It's what each party gives to the other to make the agreement legally binding. 

When you hire someone, you offer them a salary or wages in exchange for their work and services. This exchange—your payment for their work—is the consideration that makes the employment contract valid. 

If you want to change the terms of an existing contract, you need to provide something additional to the employee, such as a raise or a bonus. This is because you're asking them to agree to new terms, and there needs to be a fair exchange to make the new agreement enforceable. 

What are some examples of reasonable consideration? 

Here are some examples of reasonable consideration that an employer might offer to an employee when forming or modifying an employment contract: 

• Salary Increase: Offering a raise in the employee's base salary  
• Bonus Payment: Providing a one-time bonus or incentive payment  
• Additional Benefits: Enhancing the employee's benefits package, such as adding health insurance, retirement contributions, or paid time off  
• Promotion: Offering a promotion with increased responsibilities and a corresponding increase in pay or benefits  
• Stock Options or Equity: Providing stock options or shares in the company can be a significant form of consideration, especially in startups or growing companies.
• Training and Development Opportunities: Offering access to professional development courses, certifications, or training programs
• Flexible Work Arrangements: Providing options for remote work, flexible hours, or other work-life balance improvements
• Job Security: Offering a longer-term employment contract or assurances of job security  
  
  

If you are giving an employee a promotion or salary increase, is this a good time to also review / update the terms of employment? 

When an employee receives a promotion or salary increase, it can be an ideal time to review and update their terms of employment. This ensures that the job description accurately reflects any new duties and responsibilities associated with the promotion, clarifying expectations for both parties. Additionally, documenting the new compensation terms, including any changes to bonuses, commissions, or other financial incentives, is important.  

Are you required to give consideration when company policies, such as items in the employee handbook, are changed?  

Whether consideration is required when changing company policies outlined in an employee handbook depends on how those policies are integrated into the employment relationship and whether they affect the terms and conditions of employment. 

1. Non-Contractual Policies: If the policies in the employee handbook are not part of the employment contract and are stated as guidelines or general practices, changes to these policies typically do not require consideration. However, it's important to communicate these changes clearly to employees and ensure they understand the new expectations.
2. Contractual Policies: If the policies in the handbook are explicitly incorporated into the employment contract or significantly affect the employee's terms and conditions of employment (such as compensation, job duties, or working hours), then changes might require consideration. This is because such changes could be seen as altering the contractual agreement between the employer and employee. 

For significant changes that impact fundamental aspects of the employment relationship, it is advisable to provide consideration to ensure the changes are enforceable. This could include changes to policies that affect pay, benefits, or job security. 

Regardless of whether consideration is legally required, it is best practice to communicate any changes to policies clearly and seek employee acknowledgment or agreement. This helps maintain transparency and trust within the workplace. 

If you're planning to make changes to your employee handbook or policies, it may be beneficial to consult with a legal professional to ensure compliance with employment laws and to determine whether consideration is necessary. 

What if a long-term employee refuses to sign an updated employment contract? What are the options to get an existing employee on a contract?  

When a long-term employee refuses to sign an updated employment contract, it can present a challenge for employers. Here are some options for addressing this situation:  

• Understand the Employee's Concerns: Engage in a conversation with the employee to understand their reasons for refusing to sign the updated contract. There may be specific terms they are uncomfortable with, and addressing these concerns could lead to a resolution.
• Negotiate Terms: Be open to negotiating the terms of the contract. If the employee has valid concerns, consider whether adjustments can be made to address these issues while still achieving your objectives.
• Offer Consideration: Providing additional consideration, such as a salary increase, bonus, or enhanced benefits, can incentivize the employee to agree to the new terms. This demonstrates goodwill and can make the updated contract more attractive.
• Clarify the Importance: Explain the reasons for the updated contract and how it benefits both the employee and the organization. Highlight any positive changes or protections included in the new contract.
• Seek Legal Advice: Consult with an employment lawyer to understand your legal position and options. They can provide guidance on how to proceed and ensure that any actions taken are compliant with employment laws.
• Document Efforts: Keep a record of all communications and efforts made to reach an agreement. This documentation can be important if the situation escalates or if legal action becomes necessary.
• Consider Employment Status: If the employee continues to refuse to sign the updated contract, assess whether their continued employment without the new contract is feasible. In some cases, it may be necessary to consider terminating the employment relationship, but this should be approached cautiously and with legal guidance to avoid claims of wrongful dismissal. 

Can you change the terms in the contract, such as the number of hours if business starts to slow down? 

Changing the terms of an employment contract, such as the number of hours worked, requires careful thought and adherence to legal principles.  

Any changes to the terms of an employment contract, including hours of work, should ideally be made with the mutual agreement of both the employer and the employee. This involves discussing the proposed changes with the employee and obtaining their consent. 

If the change significantly alters the terms of employment, such as reducing hours and thereby affecting pay, new consideration may be required. This could involve offering something of value to the employee in exchange for agreeing to the change, such as a one-time bonus or other benefits. 

Constructive Dismissal: Unilaterally changing fundamental terms of employment without the employee’s consent can lead to a claim of constructive dismissal. This occurs when the changes are so significant that they effectively amount to a termination of the original employment contract, allowing the employee to resign and potentially seek damages. 

Before implementing changes, it’s advisable to consult with an employment lawyer to ensure compliance with employment laws and to mitigate any legal risks. 

Can you reduce employee hours if there is no written contract? 

Even if there is no written employment contract, the terms and conditions of employment are still governed by the Employment Standards Act in your jurisdiction, common law principles, and any verbal agreements or established practices between the employer and employee.  

If I hire someone seasonally, do I need to get the employees to sign a new contract every year? 

Whether you need to have seasonal employees sign a new contract each year depends on the terms of the original contract and the nature of the employment relationship.  

• If the original employment contract clearly specifies that the employment is seasonal and outlines the terms for each season, including start and end dates, you may not need a new contract each year. However, it is important that the contract is clear about the seasonal nature of the work and any conditions that apply.
• If there are changes to the terms and conditions of employment from one season to the next, such as changes in pay, duties, or work location, it is advisable to issue a new contract or an addendum to the existing contract to reflect these changes. This ensures that both parties are aware of and agree to the new terms. 

Even if the terms remain the same, it can be beneficial to have employees reaffirm their understanding and acceptance of the terms each season. This can be done through a simple letter of re-engagement or a short form agreement that references the original contract. 

Can you have a clause in your contract that says something along the lines of “In the event a clause is deemed unenforceable the remainder of the contract remains valid?” 

This is called a severability clause. A severability clause is a provision commonly included in contracts, including employment contracts, that ensures the remainder of the contract remains valid and enforceable even if one or more of its specific provisions are found to be invalid, illegal, or unenforceable by a court.  

The primary purpose of a severability clause is to protect the integrity of the contract. If a court finds a specific provision of the contract to be unenforceable, the severability clause allows that provision to be "severed" or removed from the contract without affecting the validity of the remaining provisions. 

While a severability clause is helpful, it does not automatically save a contract if the unenforceable clause is fundamental to the agreement. In such cases, the overall intent and balance of the contract may be affected, and the parties might need to renegotiate the terms. 

It is important to draft severability clauses carefully and ensure they are tailored to the specific contract. Consulting with a legal professional can help ensure that the clause is appropriately worded and effective. 

Can you put terms in an employment contract that specifies the number of years the employee must work for the company? 

You can include a term in an employment contract that specifies a fixed term or a minimum period of employment. However, drafting such terms requires careful consideration to ensure they are enforceable and do not infringe on the employee's rights. While you can require an employee to commit to working for a minimum period, enforcing this can be challenging if the employee decides to leave before the period ends. Courts may be hesitant to uphold terms that restrict an employee's freedom to leave a job. If you decide to include penalties or consequences for early departure, such as repayment of training costs, these must be reasonable and not punitive, as unreasonable penalties may be deemed unenforceable. Given the complexities and potential legal challenges, consulting with an employment lawyer is advisable when drafting these terms. 

Do unionized employees need to sign employment contracts?  

Unionized employees typically do not sign individual employment contracts in the same way non-unionized employees do. Instead, their terms and conditions of employment are governed by a collective agreement negotiated between the employer and the union representing the employees.  

When taking over an existing business with employees, are we required to terminate then rehire on a new employee contract? 

When taking over an existing business with employees, you are not necessarily required to terminate and then rehire employees on new contracts.  When a business is sold and the new owner continues to employ the existing employees, Employment Standards considers the employment continuous. This means that length of service is preserved, and the original hire date will be used for calculating entitlements like notice of termination and severance pay. 

Are e-signatures legally valid?  

E-signatures are legally valid. For an e-signature to be valid, both parties must consent to use electronic signatures and must intend to sign the document electronically. This intention is often demonstrated through the process of applying the e-signature. 

Can you present your employment offer by email? Is this the same as having a contract? 

You can present an employment offer by email, and it can be legally binding if it meets certain criteria.  

Sending an employment offer via email is a common and accepted practice. It allows for quick communication and provides a written record of the offer details. 

For an emailed offer to be legally binding, it must include all the essential terms of the employment agreement, such as job title, salary, start date, and any conditions of employment. The offer must be clear and unambiguous, and the employee must accept it, either by replying to the email with their acceptance or by signing and returning an attached document. Both parties must intend to create a legal relationship. This intention is usually inferred from the context and the language used in the email. 

The employee’s acceptance of the offer, whether by email or by signing a document, is crucial for forming a binding contract. Acceptance should be communicated clearly and unequivocally.  

As with any contract, there must be consideration—something of value exchanged between the parties. In employment, this is typically the employee’s work in exchange for the employer’s payment.  

While an emailed offer can be binding, it is advisable to follow up with a formal, comprehensive employment contract. This contract should cover all terms and conditions in detail and be signed by both parties to avoid any misunderstandings or disputes. 

Do you have to provide benefits during the termination notice period even if you pay out in a lump sum?  

When an employer provides termination pay in lieu of notice, they are generally required to continue providing benefits during the statutory notice period, even if the employee receives a lump sum payment. This means that even if you choose to provide a lump sum payment instead of having the employee work through the notice period, you must continue to provide benefits such as health insurance, dental coverage, and other employee benefits for the duration of the statutory notice period. 
 
If the termination involves common law notice (which may be longer than the statutory notice period), the continuation of benefits during this period can depend on the terms of the employment contract and any negotiations between the parties. It's often advisable to seek legal advice to determine obligations during the common law notice period.