Just because it's in your employment contract doesn't mean it's enforceable

By Howard Levitt and Peter Carey

"So it is written, so it shall be done!" This phrase is exclaimed frequently by Yul Brynner as Ramses II in Cecil B. DeMille's 1956 epic The Ten Commandments.

That may have been true in ancient Egypt (according to Mr. DeMille anyway) but it is not true in modern-day Canada — particularly in the case of employment contracts, where what is written is often decidedly not what is done.

Just because something is written in your employment contract does not automatically mean that it is legally enforceable. It seldom is.

We are frequently approached by clients who neglect to tell us some important fact concerning their employment issues because, so they advise us, they believed it had already been determined, since "it was in the contract."

Don't worry, we always find out whether the contract really is dispositive because we relentlessly cross-examine our own clients to extract as much detail as possible. Contrary to how that sounds, it is a pleasant experience for clients because they are almost invariably delivered very good news.

In no particular order, here are some comments we commonly receive from clients based on their belief that because something is written in their employment contract, "it shall be done."

1. "I'm not entitled to my bonus because it is discretionary."

False. Just because a bonus is described as "discretionary" does not mean that the employer can simply decide to not pay it. The basic rule is that a dismissed employee is entitled to all payments they would have received had they worked during the notice period. So, if you would have been paid a bonus had you still been working during the notice period, and if other employees are being paid one too (and possibly even if they are not), you are entitled to it when you are fired.

This also applies to the period when you were employed. If there had been a pattern of regularly paying a bonus and there is no legitimate economic or performance-based reason not to pay it in a particular year, you are entitled to it.

2. "I'm not entitled to the protections that an employee would have because my contract says I'm an independent contractor."

Just because your contract says you are an independent contractor doesn't mean that you are one. There is a specific legal test to determine whether an individual is a contractor, a dependent contractor or an employee. Regardless of what the contract says, if you meet the test to be an employee or dependent contractor, you will be treated as an employee. The vast majority of Canadian workers who file tax returns as independent contractors are actually employees.

3. "I'm not entitled to Restricted Stock Units (RSUs) or options or other equity because the plan says the equity stops and/or disappears if I am no longer an employee."

The basic rule is that you should receive what you would have received had you continued working for the notice period. For a plan to disentitle an employee from receiving the monetary benefits of equity that would have otherwise vested during the notice period, the plan has to have very specific language. A lot of plans do not have sufficient language, even if they seem to, which means that even if you don't receive the equity, you may be able to receive its monetary equivalent.

4. "My contract says I can be fired 'for cause' without any payment."

Such a clause is completely unenforceable, at least in Ontario. If an employment contract contains such a clause, whether or not an employee is being fired for cause, it will invalidate all of the termination provisions in the contract. As an aside, it is extraordinarily difficult to establish cause.

5. "My contract says the law of (pick a state) applies."

If you are working in Ontario, you are subject to Ontario employment laws. End of story.

These are just a few of the comments we receive on a fairly regular basis.

You may ask yourself why are employment contracts (or sub-clauses within those contracts) so prone to being held unenforceable? The courts recognize that there is an inherent inequality in the bargaining power between employers and employees. As a result, those contracts are interpreted, whenever possible, in favour of the employee.

In the last several years, the courts have made a number of rulings invalidating employment contracts — or portions of them. They continue to make such rulings. As a result, if your employment contract is more than a few years old, it probably contains at least a few unenforceable clauses.

Finally, it is a good idea, whenever possible, to have your prospective employment contract reviewed by a lawyer before you start your new job. Your new employer may not be willing to change their standard contract, but at least you will know what you are agreeing to and what is currently legally enforceable. If you don't do that, you will only have yourself to blame if and when relations ultimately turn sour.

Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers with offices in Ontario, Alberta and British Columbia. He practises employment law in eight provinces and is the author of six books, including the Law of Dismissal in Canada. Peter Carey is a partner at Levitt LLP.