Many Ontario employers think they’re saving money by copying an employment contract off the internet or hiring employees without one. What many believe to be a clever move soon realize it may have been a penny wise, but a pound foolish. A well written employment contract, as most might have guessed, often conveys significant advantages to employers. On the other hand, the absence of an employment contract or a poorly drafted one, often entitles terminated employees to significant common law notice periods.
The Ontario Courts are infamous for deeming employment contracts void ab initio (invalid from the beginning) where the contract is ambiguous or does not strictly comply with the Ontario Employment Standards Act. If that occurs, then instead of, for example, 4 weeks notice, employers may have to pay 4 to 6 months-in-lieu or more. For businesses of all sizes, avoidable payroll expenses likes this may be catastrophic.
But don’t take my work for it. Read the decision of North v Metaswitch Networks Corporation, in which, the Ontario Court of Appeal found that Mr. North’s employment contract was void.
The relevant portion of the termination clause at issue was as follows:
In the event of the termination of your employment, any payments owing to you shall be based on your Base Salary, as defined in the Agreement.
This provision violates the Employment Standards Act by including only base salary and excluding other additional portions of an employees’ wages which must be paid over the notice period, such as commission. The real issue in this case, however, was whether the rest of the contract could be saved by a severability clause, which stated:
If any part of the Agreement is found to be illegal or otherwise unenforceable by any court of competent jurisdiction, that part shall be severed from this Agreement and the rest of the Agreement’s provisions shall remain in full force and effect.
The court rejected this argument and held “where a termination clause contracts out of one employment standard, the court is to find the entire termination clause to be void, … It is an error in law to merely void the offending portion and leave the rest of the termination clause to be enforced.”
Advice for Employers
It is more important than ever for employers to ensure that their employment contracts are drafted by an employment lawyer and contain clear termination provisions that comply with the Employment Standards Act. Copying and pasting old contracts or downloading something from off the internet is a risk that rarely pays.
Contact Justin W. Anisman
Justin W. Anisman is an Employment Lawyer at the Toronto law firm Brauti Thorning Zibarras LLP. Justin advises both companies and individuals in all aspects of employment law including wrongful dismissal, human rights and discrimination.