5 Common Contracting Mistakes Made by Employers

Ensuring that you have succinct, legally compliant, and up-to-date contracts in place is one of the most important things an employer can do to start off on the right foot with a new employee.  It also helps to avoid legal headaches down the road, should the employment relationship not work out.

Bosses and managers are busy and budgets can be tight, leading businesses to sometimes cut corners when it comes to contract templates. Below are 5 of the most common contracting mistakes employers make that can come back to bite them later.

1. Reusing Old Contracts

It’s always the best practice to have an employment lawyer review your contract before bringing on a new employee.  It’s not uncommon, unfortunately, for employers to forego the cost of reviewing an old contract and instead re-use it.  This practice can sometimes go on for years.

It doesn’t take long for an employment lawyer to review your current contracts for key issues. The cost of doing so now can save you substantially in the long run.  One example of where employers can run into trouble involves the reuse of old termination clauses.  Contractual provisions that limit an employee to their statutory entitlements on termination are a top ask from employers.  It’s understandable why: the difference between statutory and common law entitlements can be enormous.  For example, under Ontario’s Employment Standards Act, the maximum employee entitlement to termination and severance pay is 8 or 34 weeks (depending on the payroll size of the employer).  Under the common law, employers can be liable for up to 24 months’ pay as the commonly imposed cap.

There have been major developments regarding the interpretation of termination provisions over the last couple of years that started with the Court of Appeal’s decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391 (CanLII).  The bottom line is that if you’re using a contract that’s older than June 2020 then there is a good chance that your termination provisions aren’t enforceable.

The long-term cost savings of having an employment lawyer review your contracts now can be immense (both in legal fees and severance payments), and an employment lawyer can implement a plan to fix things if your current contracts aren’t enforceable.  Also, if an employment lawyer tells you that it will be less expensive to draft you a new contract rather than rework your current one, they mean it.  

2. Taking a One Size Fits All Approach

Sometimes an employer will go to the expense of getting a contract prepared for a high-level employee, but then will use that same contract as the template for all other employees in the organization.  Employers should always ask themselves what makes the most sense for the role.  Highly detailed contracts may well be necessary for some of your employees, but applying the same strict and onerous terms to every employee in an organization won’t be helpful and can risk enforceability issues.

The courts will almost always find that an imbalance exists in the bargaining power of employers and employees, so just because an employer can force a clause into a contract doesn’t mean it should.  Overly broad usage of provisions such as non-competes (which are now banned by statute in Ontario, with limited exceptions) and arbitration clauses that force an employee to cover the costs of a dispute, can be deemed unconscionable and can make an entire contract unenforceable as a result.

3. Overdoing It

It is absolutely possible to overdraft a contract.  To be fair, this is more likely the error of an overzealous employment lawyer rather than an employer.  There are plenty of interesting clauses that can make their way into employment contracts, but they don’t all belong in every contract.  If your employee will never be creating content or inventing things, then their contract probably doesn’t need an intellectual property clause.  If the employee will never deal with clients, do you really need a customer non-solicitation provision?

The main reason to avoid over drafting is that it can lead to errors that may undo other more important parts of the employment contract.  An error in a strict confidentiality agreement could invalidate an otherwise enforceable termination provision (as was recently found in Henderson v. Slavkin et al., 2022 ONSC 2964 (CanLII)).  Employees already have a common law duty of confidentiality to their employers.  Spending several pages in a schedule to an employment contract to remind them of it probably isn’t worth the risk it creates.

4. Letting an Employee Start Working Before an Agreement is in Place

An essential element of any common law contract is consideration.  Each side must receive something of value for a contract to be enforceable.  In employment contracts, the employer is providing wages for the employee’s labour.  If the employer wants to attach specific terms to that contract, then it must do so at the outset and before an employee starts working.  Waiting even one working day before making sure you have a signed contract in place can mean that the employee is working on an implied contract, meaning that there won’t be any fresh consideration for the written agreement.  Employment contracts without that necessary fresh consideration are usually treated as unenforceable and not worth the cost of the paper they were printed on.

5. Getting Someone other than an Employment Lawyer to Draft the Contract

Podiatrists and neurosurgeons are both qualified doctors who went to school for long periods of time to gain the right to practice medicine, but you probably wouldn’t want your podiatrist operating on your brain.  Lawyers also go to school for a long time, but the distinctions of the various practice areas we can specialize in aren’t as well known.  You might really like your corporate lawyer or the family lawyer you used in your separation, but getting either of them to draft the employment contracts for your organization won’t help if those individuals are not completely up-to-date on current employment law decisions.  It’s entirely possible to draft a clause in an employment contract that has a clear and plain meaning, but that won’t be enforceable in the slightest.  Employment standards legislation is remedial in nature and attempts to draft out of obligations under legislation, even if they’re unintentional, will immediately be void.

If you’re going to spend the money on an employment contract, give yourself a better chance of it being enforceable by hiring someone who sees them every day.

Takeaways for Employers

There is plenty that an employment lawyer can do to ensure certainty for your employment contracts.  With a relatively quick review, our team can help highlight any key issues that exist in your current contracts, and help you plan to minimize any major risks you might currently have.  Taking steps to fix problems now could save your company tens to hundreds of thousands in unexpected severance payments for each employee you have.  Reach out today.

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