EFFECTIVE EMPLOYMENT CONTRACTS Presented by: Landon Young & Jeff Murray Stringer LLP www.stringerllp.com 416-862-1616

What is an Employment Contract? All employees have an “employment contract” Sets terms and conditions of employment May be written or verbal or a combination Can be express or implied Terms can change over time of relationship Policies and practices can define terms of the contract

Common Misconceptions About “Contract Employees” They are not legally entitled to benefits, but full-time employees are. In law it does not matter if an employee is considered a “contract employee” to receive benefits Full-time employees do not have a legal entitlement to benefits They have a different legal status than full-time employees. They have the same legal status

Creation of Employment Contracts An employment contract is created when the employee accepts offer of employment Legal requirement: Exchange of promises, or “Consideration” given in exchange for a promise Employment contracts can be changed during the relationship BUT the employer may need to give the employee fresh consideration

Basic Terms of all Employment Contracts Employee agrees to work and employer agrees to pay for the work Amount of pay Duties to be performed Where the employee will work Vacation entitlement Termination entitlement or, if not defined, “reasonable notice” Employer may terminate employment for “just cause”

Other Possible Terms of Employment Contracts Benefits and pension Non-competition and non-solicitation covenants Confidentiality agreements Restrictions on outside activities Incentive pay or bonus eligibility When “just cause” may exist for termination

Limits on Employment Contracts Employees cannot agree to receive less than minimum employment standards (i.e. hours of work, minimum wage, vacation pay, etc.) Cannot violate human rights legislation Cannot violate health and safety legislation

Implied Duties in Employment Contracts Employee has a duty of loyalty to the employer Top management owes a fiduciary duty Employer will act in good faith in the manner of dismissal Employers may also have a duty to act in good faith generally

Types of Breach of an Employment Contract Employee stops reporting to work Employer stops paying Employer makes a significant change to the terms and conditions of employment (“constructive dismissal”) Employee commits serious misconduct that is prejudicial to the employer’s operations (“just cause”)

What Kind of Contract? Questions to Consider: Will the relationship be short-term or long-term? Could this employee do significant harm to your organization? Will the employee’s duties change? How will the employee be paid? Will the employee’s pay change? What kind of hours will the employee work? Will the employee have access to sensitive information?

Independent Contractors Not considered employees under the law May have a written or unwritten contract to provide services Reasonable notice of termination obligations may apply unless defined in the contract Employment standards do not apply Employer does not have to make deductions for tax, E.I. or payroll remittances Same duty to provide a safe workplace applies as with employees

Differences Between Employees and Independent Contractors Control over work performed Risk of profit or loss Ownership of tools Supervision Discretion in performance of duties

Tips for Independent Contractors Only hire people as independent contractors if they meet the legal test Use written contracts Require the independent contractor to use a corporation and pay the corporation Do not enroll the independent contractor in your benefits plan

Fixed Term/Temporary Employment The employer does not owe termination or severance pay at the end of the contract’s term Duration may be specifically spelled out (such as 3 months) or more general (for the summer) Can be for a specific project

Common Misconceptions About Fixed Term or Temporary Employees This is the type of contract employers need to have to avoid paying benefits Employees can be terminated at any time without notice or termination pay Employment standards legislation does not apply to them

Potential Pitfalls of Fixed Term Contracts Employee’s services may be required longer than fixed term Employee’s services may not be required for the entire term Lack of stability in your workforce - employee may be inclined to leave for permanent employment else

Potential Pitfalls of Fixed Term Contracts Employer is required to pay the employee for the rest of the term if the employer wishes to terminate early (unless there is an early termination clause) Successive renewals of the contract can mean the employee is entitled to reasonable notice of termination If the employee continues to work after the end of the contract the employee is considered indefinite

Tips for Fixed Term Contracts Include a termination clause Don’t forget the termination date – make sure the employee does not keep working after the termination date without a new contract Avoid multiple, successive renewals

Tips for Using Contracts Generally Tailor them to the individual employee – avoid using same contract for everyone Make sure employees sign them before starting work Keep the language simple and clear Make sure minimum legal requirements are met Consider having a lawyer review it Keep a copy in a secure place!!