While we like to help businesses set up their employment relationships from day one, more often than not we come in to help a little later. In many typical workplaces, some employees have written contracts or offer letters, of varying levels of quality, and some don’t have any sort of written contract at all.

Why Have a Written Contract?

Employment relationships are governed by certain terms regardless of whether or not there is a written contract. When there is nothing in writing, the employer does not get to pick these terms, or make them explicit to the employee. They just come from the common law.

The most litigated implicit term of employment is the employee’s right to reasonable notice of termination. Where there is no written contract the employee is entitled to reasonable notice of termination under the common law. This amount is roughly determined based on how long it would take the employee to find a comparable position considering their age, their length of service, the character of their employment and the availability of similar employment, taking into account the employee’s training and qualifications. When the contract is not in writing, there is uncertainty about what constitutes a “reasonable” amount of notice and it might be a lot, up to 24 months in extreme cases.

A written contract allows an employer to set out how much notice the employee will be provided should they be terminated without cause. The amount of notice needs to be at least Employment Standards Act minimums and there are specific nuances that make the way this section of the contract is drafted important (get a lawyer!). A written contract can limit the employer’s notice exposure and provide both parties with certainty.

Transitioning Existing Employees to Written Contracts

Transitioning existing employees to new contracts, whether they be in writing for the first time or new written contracts with proper drafting, is tricky. In order for a contract to be valid, “consideration” must be given to the employee in exchange for their agreement to the terms. At the start of the employment relationship consideration is the job itself. This is why is it SUPER IMPORTANT to make sure new employees sign their contract BEFORE they start work.

Justice Goodman of the Ontario Superior Court of Justice considered the issue of transitioning an existing employee to a new contract in Lancia v. Park Dentistry, 2018 ONSC 751. In this case, the employer, Park Dentistry, gave the employee in question a new contract. Here’s what they did right:

  • Provided the employee with 18 months of working notice, if she chose not to sign the contract – This means that they let her know about the new terms of her employment, but if she didn’t want to accept them, then the old terms of her employment would continue for 18 months and then her job would end. This was sufficient reasonable notice.
  • Provided the employee with $2,000 as “consideration” for signing the new employment agreement – Even though the new terms of the employment reduced the employee’s annual income by $4,000, $2,000 was sufficient consideration for the new terms of the contract. On this subject, Justice Goodman said, “Indeed, it is trite law that courts will not inquire into the adequacy of consideration – a “peppercorn” will do.”
  • Provided the employee with ample time to seek legal advice – The employee could have decided to sign the contract at any point during the 18-month working notice period. This gave her lots of time to seek legal advice if she chose to.
  • Ensured the employee signed the contract – While this may seem hardly worth mentioning, lots of employers fail to follow through on this crucial step.

If you’re an employer thinking that maybe it’s time to check out your employment contracts situation, get in touch. It’s important that your contracts are properly drafted and that you take the right steps in rolling them out to existing employees to ensure that they will be enforceable down the line.