The basics of Canadian employment contracts

by Rachel Ravary and Brian P. Smeenk

So you’ve hired a new employee. Should you put it in writing? If so, what should it look like? What do you include? What is better left out? If you decide against an employment contract, what will the terms and conditions of employment be?

Those are some of the many questions that arise when you make an offer of employment. This week’s tips will give you practical advice on these and other questions about employment contracts for your Canadian operations.

Number 1 — Don’t assume that because you don’t have a formal agreement in writing, you don’t have an employment contract.

Every employer in Canada has an employment contract, whether written or unwritten, with each of its nonunion employees. An employment contract exists as soon as an individual agrees to provide services to an employer in exchange for remuneration of any kind. Sometimes, none or only some of the contract terms are in writing, but it’s still an agreement that can be enforced in the courts. Courts can fill any gaps in the express agreement by implying reasonable terms.

For employees represented by a union, the contract terms are contained in the collective agreement.

Number 2 — If you want to play it safe, get it in writing.

It’s up to you how much or how little of your agreement you put in writing. You can have a comprehensive, written employment contract, or you can put nothing in writing. Of course, if you take the more informal approach, you’re open to arguments about what promises were made. You may also be at the mercy of the courts that will imply what they believe the reasonable terms of employment should be. The safer course is to set out at least the key terms and conditions in writing.

Number 3 — Long or short? Simple or comprehensive? The choice is yours.

The form of your written agreement is really up to you. You can use a formal contract, or you can simply use an offer letter containing the key terms, which the employee signs and accepts in writing. Also, employment policies that are given to employees, especially those given at the time of hiring, will usually become implied terms of the employment contract.

Number 4 — An employment contract is not “until death do you part.”

You can still terminate employees even if they have a contract of employment. You must, however, give proper notice or pay in lieu of notice of termination. The courts will determine how much notice is reasonable unless your contract provides for a specific notice period. Contractual notice provisions will generally be enforced by the courts so long as they meet statutory requirements (or the Civil Code in Québec) and aren’t otherwise unconscionable.

Number 5 — Tailor the contract to your needs.

In addition to termination provisions, your contract should include any other matters that are most important to you and that will not likely be covered by the general policies you give to all employees. So you may want to include clauses dealing with:

• probationary period after hiring;
• salary and future salary increases;
• job title and scope of duties;
• possible changes in job or location;
• protection of the employer’s intellectual property; and
• post-employment obligations (confidentiality, nonsolicitation, etc.).

Number 6 — Timing is everything.

The timing of the employee’s signature on the offer of employment or employment contract is important. In order for the terms in the offer letter or employment contract to be enforceable, the employee must sign the document before he or she starts work. Even if you have to delay the employee’s start date, make sure to have him or her sign the document first.

McCarthy Tétrault has a great deal of experience in all matters relating to employment contracts in a wide variety of fields and workplaces. We can help draft an employment contract to address any situation.

Where will disputes about your international employment contracts be resolved?

By Brian P. Smeenk

This question can be a vexing one. Will disputes be resolved in the employee’s country of origin? In the country in which the employee is now working? In the country in which your head office is located? In the country in which the employment contract was executed? All of the above? And how will you know?

You could be forgiven for being confused about this. The courts have been, too. What’s more, the answer that Canadian courts give will not necessarily be the same as the answer of a U.S. or foreign court. Here I can at least provide a brief outline of how a Canadian court should look at this issue.

First, note that this question is not the same as the issue of what country’s laws apply to the contract of employment. The applicable law is not the same as the selection of the appropriate forum for dispute resolution. A Canadian court may enforce foreign laws, and a foreign court may enforce Canadian laws.

Failing a binding agreement on where and by whom a dispute will be resolved, how will this be decided? Canadian courts will look at two distinct issues in this regard:

• Do they have jurisdiction to consider the dispute?
• Are they a convenient forum for considering the dispute?

Somewhat different, but related, factors apply to each question. Therefore, even though a Canadian court concludes it could entertain a dispute insofar as it is within its jurisdiction to do so, it may still decide it should not do so if it’s not the most convenient forum.

Factors going to a Canadian court’s jurisdiction
In general, these factors may include some or all of the following:

• The presence of one or both parties in the province or territory in which the court is located.
• Whether the parties have consented, implicitly or explicitly, to have disputes resolved by that court.
• Is there a real and substantial connection between the claim and the province or territory in which the court is located? For example:
  • Was the contract carried out in the province?
  • Did the alleged breach of contract occur in the province?
  • Were the damages suffered in the province?
  • Did the employee embark from or will he return to the province?
  • Does either party reside or do business in the province?
• Would any unfairness befall either party if the court assumes jurisdiction? Would the party’s claim or defense be significantly prejudiced? Would the difficulty or expense of fighting the case be materially increased for one of the parties?
• Would the judgment of the Canadian court be recognized abroad, to the extent that this may be important? For example, must the judgment be enforced in another country, and is that feasible?

Factors determining the convenient forum for dispute
The factors for determining whether the dispute should be heard by the Canadian court may include some or all of the following (some of which overlap with the jurisdiction factors outlined above:

• Location where the contract was signed.
• What is the applicable law of the contract? This may be stated explicitly or may be implied in the terms of the deal.
• The location where the majority of witnesses reside.
• The location where the bulk of the evidence is located.
• The place where the dispute actually arose.
• The residence or place of business of the parties.

What this means for you
It’s important to think through these and related issues before you send executives temporarily to Canada or from Canada to other countries. We can advise you on how Canadian law will apply, help you find foreign legal advisors if necessary, and advise you in the drafting of appropriate employment contracts or appointment letters.

These kinds of measures, in a well-drafted appointment letter or employment contract, can save you many headaches and potential liabilities.

Must-know facts about employment contracts in Canada

Q. When does an employer have an employment contract with its employees?

A. Every employer in Canada has an employment contract, whether written or unwritten, with each of its nonunion employees. Sometimes, only some of the terms are in writing. When necessary, courts will imply reasonable terms in the absence of any express agreement on the issue. (more…)