Episode 2: Common Traps in Employment Contracts Podcast

Employment contracts are often one-sided and favour employers. In this podcast, Bram Lecker, Principal of Lecker & Associates and experienced employment lawyer, discusses how Ontario’s employment laws treat employment contracts.

What should employees pay attention to before signing contracts? Bram provides insight to how employers attempt to limit their liability with terminations, glaring short comings often found in contracts drawn by multinational corporations and the requirement for material considerations when new owners impose fresh contracts on staff when the business changes hands. Bram also discusses non-compete clauses that can limit an employees ability to seek alternative employment.

Transcript: Common Traps in Employment Law

Bryan Goman:  "The Employee Rights Podcast" is presented by Lecker & Associates, employment lawyers representing Ontario workers for over 35 years.

Today on the podcast, we'll be speaking with Bram Lecker, Principal of Lecker and Associates, about common traps in employment contracts. I'm Bryan Goman, and this is The Employee Rights Podcast.

Bram, thanks again for doing this. Once again, today we're talking about common traps and employment contracts. Should all employees ask for written contracts?

Bram Lecker:  Actually, quite to the contrary. The law in Ontario and most provinces in Canada is a very progressive regime of judge‑made and statute law, which is highly protective of employees and is essentially implied into every employment relationship.

When you get terminated, especially not for cause, the employer is obliged to pay two levels of compensation. One, a minimum statutory level, which in Ontario is called the Employment Standards, Severance and Termination pay, and as well an umbrella coverage called Common Law Entitlements, which are based on your age, length of service, and type of position.

The courts will always strive to pay somebody compensation on a reasonable basis, very much in tune with how long it’s going to take the person to find a job given age, length of service, and type of position. It is implied into every contractual relationship without anything being in writing. Contrary to conventional wisdom, you can have a contract that’s not in writing.

It’s not in an employee’s interest to seek out a written contract because most of the time, the employee is going in with an inequality in bargaining power, and is not able to negotiate terms of severance that would be equal to what the court would give them in the event of no contract at all.

Bryan:  In a lot of cases, the employers do hold a lot of the power. They will make signing a contract, an employee contract, a condition of your employment. What are some of the terms that employees should be wary of and what can they negotiate?

Bram:  It ranges from either the commercial or pedestrian rights that are spelled out in a contract. Things like your hours of work, location of work, job description, your salary, and especially bonus.

Those are all things you should look at very carefully because going forward, the employer will rely on that if there’s any dispute or gray area. You have to check that out very carefully.

That’s a value judgment as to how much you want to give your services in return for whatever pay they’re offering. It ranges to things like looking at what benefits are contained in the employment. You shouldn’t assume that there’s benefits coverage or that the benefits coverage is comprehensive to things like pension rights and retirement provisions.

The main thing that you have to be wary of ‑‑ a buyer beware situation ‑‑ is the termination provisions, which seek to protect an employer from the kind of liability for severance that I was speaking about before. Written contracts are usually designed and offered by employers to limit their exposure.

Bryan:  What are some of the problems you see with contracts, and specifically those that are drawn up by multinational corporations?

Bram:  Not to trash the Americans at all, the reality is that the US culture was always very different from Canadian business culture in its regard for employee rights. Many jurisdictions in the United States are what we call at‑will or right to work jurisdictions.

What that essentially means is an employee could work for a company like the old, now‑defunct Sears Corporation out of Illinois ‑‑ and Illinois is an at‑will state ‑‑ for 30 years, and be 60 years old, and have a senior position. In Canada, that’s going to get you 24 months of severance. In US, you’d be lucky to look at two weeks, or in that particular estate.

Any company that is used to that corporate culture will try and protect themselves from liability when operating in Canada.

Bryan:  Businesses get sold all the time. What happens to existing employment contracts? Can a new employer change terms and demand employees sign new contracts with new terms?

Bram:  A very good question. It’s one of these areas that’s somewhat gray at the present time, but this is where the law is right now. Yes, an employer can impose a new contract when purchasing either the assets or shares of an existing company. In order to do that, they have to show that there’s something we call fresh consideration.

In other words, there was an improvement in the relationship to entice the person to sign a new relationship. One, Company A buys Company B. They go to the old employees of Company B and say, “We want to extend your employment, but we want you to sign employment contracts.”

All the old employees, their seniority has to be protected. That’s in Canada, that’s by statute. In terms of the additional protections, the common law protections which I alluded to earlier, the employer, once again, will try and limit those protections as much as they can.

They can do so successfully if they offer either a signing bonus or retention bonus, or additional benefits, or change pensions in a superior way. There’s got to be some consideration for the signing of the agreement. If they do that, they can successfully lock the old employees into the new contracts, unfortunately, in my view.

Bryan:  When signing a new agreement, whether that’s with a completely new company, or maybe a company that’s purchased the previous company, what do you need to watch out for in terms of non‑compete clauses?

Bram:  There’s two scenarios here. Let me just clear one of them. It would be very difficult for an employer, without very good cause, to come to their existing employees and say, “I want you to sign a non‑competition contract,” which limits their ability to go elsewhere and find new employment. That would be very, very difficult.

In a situation where you’re new to the employment relationship, like we were just talking before, and so one of the provisions, it could be very problematic because, once again, working together with determination clause, in the event of a breakup in this marriage, you want to go out and find another position.

The law, in fact, encourages you to do that. If you haven’t watched the terms of the contract very carefully, you’d be faced a provision which purportedly says that you can’t work for another company in the same business, selling the same products in a given geographical area, or for a given time period.

In a lot of cases, that would put a very difficult set of obstacles to an employee seeking a position. Fortunately, and once again, speaking to the issue of how Canadian courts protect employees, the Canadian courts are very, very circumspect and conservative about enforcing these agreements.

They don’t like to, in any way, restraint trade as it’s always been seen, and especially they don’t like to unduly restrict somebody’s ability to seek alternative comparable employment.

It’s still something that should be looked upon very, very carefully because if they’re well drafted in the proper circumstances, especially if somebody is party to certain ‑‑ as we say ‑‑ proprietary or technical information, it could cause somebody a big problem. It’s something to be very much beware of.

Bryan:  Taking all these common traps into consideration, what can someone do to protect themselves?

Bram:  It’s pretty easy. Before you sign, because after you sign, it’s too late. You’ve signed and you’re bound by the contract. Prior to signing, while you’re considering the offer, go to speak to a lawyer.

Go to speak to someone who is proficient in this area, who knows all the traps, who’s dealt with them, and especially, is familiar with the termination and the non‑competition provisions, to be able to tell you this is going to be binding on you.

Some aren’t, some are technically deficient and can be voided down the road. Some raise double red flags, pirate flags, and you’ve got to be very, very careful to make sure that you don’t fall into a position where you work for a company for 10 years. Something happens. You either become ill, or they just lay you off.

Instead of having the protection which the courts normally provide you, the company dusts off the contract you signed before. It says, “Look, we’re just going to give you the minimums, one week per year to a maximum of eight weeks because that’s all we have to. You signed this agreement.”

Like a marriage contract that you take out of the shoe box, the reality is it’s a very serious thing. By signing it 10 years before, you limited your rights. Go to see a lawyer, at least, walk into the situation with your eyes open and know what you’re signing away. That’s the important thing.

Bryan:  Bram, thanks very much.

Bram:  Thank you.