Every single employee-employer relationship is governed by an employment agreement, which explicitly or impliedly defines the terms of the employment relationship. Although not every employment agreement will be set down in writing, having a clearly worded and unambiguous written contract will ensure that both the employee and employer have a full and complete understanding of their respective rights and obligations.

For employers in particular, having a well-drafted employment agreement can significantly reduce their exposure to wrongful dismissal damages in the event that the employment relationship comes to an end. On the other hand, a poorly drafted agreement may be of no benefit at all, or indeed, increase an employer’s potential liability exposure. In light of these potential risks and benefits, we have provided four key points that employers need to keep in mind when deciding how to approach this vital aspect of the employment relationship.

1. Compliance with Employment Standards Legislation

As a starting point, and as every employer should be aware, employment standards legislation provides the minimum terms and conditions under which an employee can be employed. However, what needs to be emphasized in this regard, is that an employment agreement cannot be in a state of non-compliance with the minimums specified under the legislation.

If a term or condition is found to be non-compliant with the employment standards minimum, not only will that minimum be statutorily implied into the employment agreement, but the previous term will be considered “void” by the court, and cannot be relied on by the employer or even used to determine the parties’ intentions. As will be further discussed below, this can have significant implications when it comes to determining an employee’s rights and entitlements under the employment agreement, particularly in relation to a court’s ability to award wrongful dismissal damages.

2. Ambiguity in the Contract

It should go without saying that an ambiguous or poorly drafted agreement can have significant consequences for the parties executing such an agreement. In this respect, not only will there be uncertainty among the parties as to their respective rights and obligations, but they may also find themselves to be disentitled from what they bargained for or exposed to an unexpected liability. In the context of employment agreements, these risks are even more pronounced for the employer since any ambiguity in the contract will be interpreted by the court to favour the employee.

Accordingly, and as with non-compliance with employment standards legislation, having an ambiguous or poorly drafted employment agreement can result in an employee having enhanced rights or entitlements beyond what was bargained for. Alternatively, an employer may be unable to rely on the agreement to their detriment, especially when it comes to limiting an employee’s termination entitlements or enforcing restrictive covenants (e.g. non-competition and non-solicitation clauses).

3. Lack of Consideration

A basic concept that is often overlooked is that in order for an employment agreement to be valid and enforceable, there needs to be some form of consideration (read: benefit) received by each of the parties. Although this is typically not an issue for new employees (they are gaining the benefit of new employment), this becomes much more significant where an employer attempts to amend or change the terms of an employment agreement for a current employee.

Without offering some new benefit to the current employee, changes to an existing employment agreement, or the new imposition of an employment agreement, will not be enforceable. With that being said, a relatively simple means of preventing this issue from arising is for an employer to link the changes to the employment agreement or relationship with a new benefit, such as a raise, promotion, or even small monetary payment.

4. Termination of Employment

A common misconception among employers that is that when an employee is terminated without cause (also known as a wrongful dismissal) that employee will only be entitled to receive notice or pay in lieu of notice in accordance with the applicable employment standards legislation. Unfortunately, and what many employers come to learn on the losing side of a wrongful dismissal lawsuit, is that barring very specific and unambiguous language to the contrary, an employee who is dismissed without cause will be entitled at common law to “receive “reasonable notice” or pay in lieu of such notice.

Although a variety of factors go into the determination of what constitutes “reasonable notice” at common law, including the employee’s age, length of service, position, and job market, at the very high end an employee could be entitled to receive up to 20-24 months’ notice or pay in lieu of notice. While this is not to say that every dismissed employee will be entitled to such a long notice period, common-law notice requirements are often far greater than the required notice under the Alberta Employment Standards Code, which for reference caps out at a lowly 8 weeks.

A well drafted termination clause can significantly decrease an employer’s potential liability for wrongful dismissal damages, whether by capping the employee’s entitlement to the statutory minimum notice or by setting different basis for such damages to be assessed.

This post is intended to provide general information concerning developments in the law and is not intended to provide legal advice in respect of any particular situation.