As part of my practice, I am called upon by employee clients to provide advice regarding the negotiation of new employment contracts. Typically, by the time that I get involved, the employee has negotiated the terms of employment verbally with the potential employer, and has received a written employment agreement from the employer, that purports to set out the terms that had been verbally agreed upon.
While there are certain elements of the contract that can be complicated (and which need the input of an employment lawyer), there are also a few basic concepts that you should familiarize yourself with if you choose to negotiate the contract yourself. Reflecting on recent experiences I have had, I have compiled the following list of 5 important terms to consider when negotiating a new employment contract:
- The “Entire Agreement” Clause. Some employment contracts contain a section that is referred to as an “entire agreement” clause. Generally, that clause will state that all terms of employment that have been contemplated and/or discussed by the parties are reflected in the contract and that no additional terms will be binding on the parties. If this clause is present in an employment contract, it is important for both parties to ensure that the contract actually reflects all of the terms that have been discussed and that nothing has been forgotten. Similarly, the parties should also ensure that the terms of the contract are not inconsistent with the terms that have been discussed. If something is missing that should be there, or if there is any inconsistency between the written terms and the employer’s verbal representations, that should be addressed before the contract is signed.
- Bonuses and Variable Compensation. With respect to bonus and variable compensation entitlements, “the devil is in the details” – unless the contract clearly spells out exactly what the employee will be entitled to and when, it can be difficult to successfully assert a claim for entitlement to a bonus or variable compensation payment. Language stating that the payments are “discretionary” or “to be agreed upon by the parties” is not particularly helpful, as it does not create any specific entitlement for the employee (or trigger any particular obligation for the employer). Similarly, a term that stipulates that the employer and the employee will agree on the bonus and variable compensation structure at a later date is also unhelpful (and unenforceable). Although it may not be reasonable to stipulate that the payments are guaranteed, the contract should clearly outline (i) the criteria that must be satisfied in order for the employee to be eligible for a bonus or variable compensation payment, (ii) the method of calculating that bonus or variable compensation payment, (iii) the timeline in which that payment will be made, and (iv) what, if any, pro-rated payments will be made in partial years of service (i.e. in the event of a leave of absence, termination, etc.).
- Documents Incorporated by Reference. The employment contract may reference employer policies, plans, programs, terms of employment, etc., which are also intended to govern the employment relationship. Among other things, those other documents may provide further details regarding (i) the terms of bonus and variable compensation plans, (ii) workplace policies, and (iii) benefits entitlements. When an employment contract refers to other employer documents (and “incorporates” those documents “by reference” into the terms of employment), it is important for the employee to read those other documents before signing the contract.
- Enforceability. While there can be many factors that impact the enforceability of the contract (or of particular terms in the contract), the timing of signature is one of the most common. Without delving into the details of contract law, suffice it to say that it is important for the employee to sign the employment contract before commencing employment (or before those terms come into effect) in order to ensure that the contract is enforceable. It is equally problematic if the employer rushes the employee to sign the contract, such that the employee does not have a reasonable opportunity to review the contract and obtain legal advice. If it is not possible to review and sign the contract prior to starting work (i.e. because the employer provides the contract on the first day of work, or if the employer is seeking to “back-date” the terms of the contract), it may be appropriate to request a “signing bonus” or other benefit that is conditional upon signing in order to ensure that the contract will ultimately be enforceable.
- Notice Periods. Some (including my colleague, Christine Thomlinson, who has written a book entitled “For Better or For Worse: A Practical Guide to Canadian Employment Law”) have suggested that an employment relationship is similar to a personal relationship, containing stages such as “courting”, “engagement”, “marriage”, “separation”, and “divorce”; and, while neither party to a relationship wants to consider “separation” or “divorce” at the “courting” or “engagement” stages, it is important to do so, at least in the context of an employment relationship. The general rule is that, in the absence of “just cause” for the termination of employment, the employer has to provide the employee with reasonable notice of termination (or pay in lieu of reasonable notice). Although the minimum notice periods are prescribed by law (i.e. by the Employment Standards Act, 2000, the Canada Labour Code, etc.), the parties may wish to discuss a notice period in excess of those minimum entitlements. In that regard, the employee should ask him/herself: “If I am terminated, how long might it take me to find another job?” And although the employer may not be agreeable to a notice period that covers that entire period of time, it may be willing to provide something more than the employee’s statutory minimum entitlements.
While you may be eager to begin working for your new employer, it is important that (i) both parties take the opportunity at the outset to define the terms of the employment relationship before it begins, and (ii) you review the terms of employment as clinically as possible (i.e. and try to suppress the mesmerisation created by your exciting new job opportunity). By doing so, you will avoid any surprises that may arise along the way, and you will know what to expect if it ever comes to an end; and, if you encounter anything unexpected or inconsistent with what you had verbally agreed upon, you should address that with your potential employer before signing the contract – once the contract is signed, it is much more difficult to negotiated and revise.
Of course, this article does not anticipate every issue that may arise in negotiating an employment contract, nor should not be taken as a substitute for legal advice.