5 Ways Written Employment Contracts May Be Unenforceable
Employees and employers alike sometimes assume payment on dismissal is limited to whatever is outlined in their written employment contract. This is not necessarily true. Many termination provisions in employment contracts are poorly drafted and/or illegal and therefore unenforceable.This is more common than many people realize. If a written employment contract is unenforceable, the employee’s entitlement is governed by the common law which provides employees with ”reasonable notice” which tends to be much more generous than most written employment contracts and certainly more generous than the legislated minimums.
Here are 5 reasons employees may be entitled to a larger payment on termination than their contract states:
1. The contract provides for too short a period of notice
A common example of this is contracts which provide for “2 weeks’ notice” or “1 month’s notice” regardless of the dismissed employee’s length of service. This is problematic as some employees may be entitled to more than this pursuant to employment standards legislation. Regardless of whether or not it meets these legislated standards for the employee at the time of termination (i.e., because of his or her length of service), the contract will generally be unenforceable if it has the potential to provide less than the employee’s minimum notice entitlements at some time in the future, when they have longer service.
2. The contract does not provide for the continuation of benefits on termination (or expressly excludes it)
The Employment Standards Act, 2000, (Ontario) also requires that benefit plans be continued at least through the statutory notice period (up to a maximum of 8 weeks, depending on the employee’s length of service). If your contract does not specifically provide for the continuation of benefits during the statutory notice period, it may be unenforceable. If it expressly or impliedly excludes such continuation, it is unenforceable.
3. The contract does not clearly foreclose the employee’s common law entitlement
Unless your employment contract clearly states that the notice period provided for serves as a replacement for your common law entitlement, courts may not see it as a limit.
4. The contract was signed without “consideration”
The rules of “consideration” mean that a contract is only binding upon an exchange of commitments (from employer to employee and vice versa), as opposed to a one-way obligation (from the employee to the employer).
When an employee first signs a contract of employment before commencing employment, the consideration for the agreement is generally the job itself. After commencing work, if the employer wants the employee to sign an employment contract the employer must offer, and the employee must agree to, some additional consideration (e.g., a benefit of some type such as a raise, a one-time bonus payment or an additional week of vacation) in order to make the contract binding.
5. Ambiguities in drafting may be interpreted in favour of the employee
Canadian courts do not like to deprive employees of their common law entitlements, unless the employer has very clearly limited the employee in this respect. Accordingly, Canadian Courts tend to seize on even minor ambiguities (i.e., language that could reasonably be interpreted in more than one way) in the contract to find that it is unenforceable.
Employees may be entitled to significantly more termination pay than they initially thought, and employers may be relying on employment contracts with no teeth.
Employment contracts cannot be taken at face value. Both employees and employers alike may need help from a lawyer to interpret them.