One of the questions we are commonly asked by non-unionized employers is whether they should use written employment agreements with their employees. While written employment agreements are not a replacement for sound human resources planning or judgment, a well-written agreement, tailored to the specifics of the employment relationship, can be an invaluable component of successfully managing employees throughout the life-cycle of the employment relationship, beginning to end.

On the most fundamental level, a written employment agreement provides an employer with the opportunity to set out the terms and conditions of the employment relationship. If implemented properly at the outset of employment, this can help to avoid misunderstandings over basic issues that will invariably arise if the employment relationship is premised on verbal agreements alone. These basic issues include the number of days or hours an employee is expected to work; the amount and rate at which overtime is payable; vacation and sick day entitlements; the provision of fringe benefits, the amount and timing of bonuses and commissions; and, sometimes, even salary.

A written employment agreement may also become important if the employer must bring the employment relationship to an end. If there is no written employment agreement establishing the amount of notice that an employee is entitled to upon termination, an employee who has been terminated without “just cause” (i.e. good and sufficient reason) will be entitled “reasonable notice” which will typically be far more generous to the employee than terms agreed to in a written employment agreement at the outset of the employment relationship.

In our experience, it is the termination of the employment relationship that is the most common, and often most costly, problem faced by employers that operate without written employment agreements. Consider the following example: an employee has been working for the same employer for 15 years, is older and holds a middle-management position. Without a written employment agreement the employee might be entitled to 15 months’ “reasonable notice” of termination (or more) if his or her employment is terminated without good and sufficient reason. However, if prior to starting employment, the employee signed a written employment agreement that provided for 6 months’ notice, the employer would likely have saved itself 9 months of pay, not to mention the legal costs that could be associated with defending a lawsuit filed by the terminated employee. A written employment agreement can establish how – and how much it will cost – to bring the employment relationship to an end.

Ultimately, a good employment agreement will go a long way in bringing certainty to the employment relationship and, in that sense, will likely help save time and resources in managing employment relationships from beginning to end. It is a key component for sound human resources planning. If your organization makes the decision to implement written employment agreements, consider the following:

  • Ensure that you address all basic issues in the agreement, such as the date on which employment is to begin, vacation, salary, etc.
  • There will be problems enforcing employment agreements signed after employment has already started so have the prospective employee sign and return the agreement well in advance of the start date. If you have already established an employment relationship without a written employment agreement, then you can still implement a written employment agreement, but this requires additional consideration such as a signing bonus.
  • While it may be difficult to discuss termination at the outset of a new relationship, include a termination provision in the agreement. If the agreement does not address what happens when you want to bring the employment relationship to an end, the concept of “reasonable notice” will likely apply instead which will likely be very generous to the employee.
  • If it is important that an employee agree to certain terms contained in a guideline or manual, or another agreement (such a confidentiality agreement), the guideline, manual or agreement must be provided to the employee with the offer of employment. There must be proof that the employee was provided a copy, had an opportunity to review and agreed to the terms.
  • Agreements signed under duress are unlikely to be enforced. Give the employee sufficient time to review the agreement and ask questions.