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HR Advice on Best Practices for Employment Contracts

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A comprehensive and clearly worded employment contract is essential to protect the interests of your business and your staff. An employment contract is mutually beneficial to both the employer and employee as it provides clarity on the rights and responsibilities of both parties. Outlined below is key information that employers should know about employment contracts.

While the terms of employment can either be in writing or provided orally, setting them down in a written contract is recommended as it helps:

Outline responsibilities

Job contracts detail employee job duties, salary, benefits, company policies, and more. Ensuring the role of the employee is clearly outlined in a contract, prior to them starting their job, helps avoid future confusion or disagreements over the scope of their role.

Resolve disagreements

An employment contract that clearly defines the terms of employment and rules of the workplace can serve as a reference guide in case of a disagreement. Employment contracts often include dispute resolution procedures that help avert long legal battles, and the time and costs associated with them.

Avoid litigation

A well-drafted and valid job contract reduces the risk of legal claims for the employer. It protects the rights of the employees as well, ensuring they receive at least the minimum entitlements set down in the provincial employment standards.

What are the different types of employment contracts?

There are three main types of employment contracts in Canada:

  • Indefinite-term contracts
  • Fixed-term contracts
  • Independent contractor agreements

What are indefinite-term contracts?

Indefinite-term contracts are used for employees who have permanent jobs within a company. While these contracts lay out the terms and conditions of employment, they do not set an end-date for the employment relationship.

When indefinite-term contracts are ended without cause, employees are entitled to notice of termination and/or termination pay. If these contracts are terminated with cause, employers are not required to provide notice of termination or termination pay.

What are fixed-term contracts?

Under fixed-term contracts, the employment relationship exists for a fixed or specified period. Since the termination date is agreed upon before commencing the employment, no notice or pay in-lieu is required when the contract term ends.

But if the contract is terminated without cause before the pre-set termination date, the employee is entitled to the remaining value of the fixed-term contract.

What are independent contractor agreements?

These agreements are entered into with self-employed individuals or freelancers for the duration of specific projects. As independent contractors are not employees, they are not covered by the applicable employment standards legislation. The independent contractor agreements typically include a confidentiality clause. This ensures the independent contractor will not share sensitive business information with anyone, except authorized company employees.

What are some basic areas to include in an employment contract?

Besides the minimum entitlements and conditions required by your provincial employment standards legislation, the clauses and polices you may want to include in your employment contract will depend on your industry and the type of employment (full time, part time, contract, project based, etc.) being offered.

Some basic terms of employment to address in your job contracts are:

  • Hours of work
  • Job responsibilities
  • Salary, bonus, benefits
  • Conditions of offer (reference check, background check, and so on)
  • Privacy and confidentiality policies
  • Layoff clause (giving the employer the contractual right to alter certain terms of employment when needed)
  • Disciplinary procedures
  • Termination clauses and policy

What are some things to keep in mind while drafting employment contracts?

Employers, especially those operating a nation-wide business, should remember that employment law varies across provinces. The terms and provisions that apply to an Ontario employment contract will slightly differ from that of a BC employment contract or one for Alberta.

To be considered valid, your job contract must follow the minimum terms and entitlements (wages, work hours, leaves of absence, etc.) set by the employment standards legislation in your province. While employers are free to offer more benefits to employees, they cannot provide less than the minimum entitlements outlined in their province’s employment standards act. Your employment contract and company policies must also comply with the provincial occupational health and safety law and human rights legislation.

Here are some best practices to follow while creating employment contracts:

Provide the employee with adequate time to review the contract

Giving the employee several days to one week for reviewing the contract allows them to thoroughly peruse it and seek independent legal advice if they wish to do so.

Have the contract signed prior to the first day of work

The employee should agree to the terms of their employment before beginning work to avoid discrepancies over the work agreement. Also, having a work contract signed after the employee’s start date can result in any onerous terms within the contract being unenforceable for lack of consideration.

Always use clear, detailed language

Any wording in your work contract that is vague or leaves room for ambiguity may expose you to potential legal claims.

Attach relevant documents to the employment contract

If the job contract refers to other documents (for e.g., employment policies or a code of conduct), these documents should be attached to the employment contract for the employee’s reference.

Update your employment contract

Employers should update their employment contracts and policies in compliance with changing legislations and legal requirements. At times, the modifications required may be due to internal changes, such as business restructuring, pay raise, promotions, etc.

It is critical to keep in mind that employers cannot change certain terms of employment (such as salary, location, work hours, etc.) mentioned in the contract without the employee’s consent or a contractual right to do so. Doing so in the absence of mutual agreement or contractual rights may be considered constructive dismissal and may lead to litigation.

Are you looking for more information on employment contracts?

If you’d like to create employment contracts for your business or are thinking of updating your existing ones, Peninsula can help. Our advisors can draft customized employment contracts, and any other HR documents, and help you identify any potential issues with your wording or policies. To learn more about how our HR outsourcing services can benefit your business, call an expert today at 1 (833) 247-3652.