Employment Contracts – Valid or Invalid?

All employees have “legal contracts” with their employer, whether they are realize it or not.  Many employees do not have written employment contracts with their employers, while others do. For those employees bound by written employment contracts, there can be several legal obligations and rights that govern the employment relationship contained in an employment contract. One of these obligations is the amount of notice, or pay in lieu of notice (i.e. severance pay) that your employer must provide if your employment is terminated without cause. However, if a termination clause is legally invalid, then an employee’s entitlement to notice or severance pay is determined by common law factors – age, length of service, re-employability, amongst other factors.

Case Study

There are many potential legal arguments as why a termination clause will be invalid.  The law in this area is constantly evolving. In a recent Ontario Court of Appeal caseWood v. Fred Deeley Imports Ltd., the Court dealt with several arguments challenging the validity of the termination clause in question, two of which have relevance to employment contracts formed in British Columbia:

  1. Consideration – for an employment contract to be valid, there must be offer, acceptance, and consideration (i.e. something of value). To be legally valid, the contract must be signed by the employee prior to the first day of work. If the contract is signed on the first day of work or any day thereafter, the contract may be held to be invalid, unless something of value (i.e. raise in salary, bonus, etc.) is provided by the employer to the employee. For employers, it is imperative that an employment contract is provided to the employee and signed prior to the first day of work.
  2. Compliance with the Employment Standards Act – If an employment contract does not provide for the minimum entitlements (including termination pay) as set out in employment standards legislation, the termination clause is invalid. This holds true even if its theoretically possible for your entitlements under the contract to fall below the statutory minimums at some point in the future.

Takeaways for Employees and Employers

For employees – upon termination, have your employment contract reviewed before agreeing to a severance package from your employer. If the termination provision in your contract is “invalid”, you’re entitled to reasonable notice – that amount likely exceeds what’s provided in your contract.

For employers – have an experienced employment lawyer review your employment contracts now. The courts have provided increasing clarity on what is required for an employment contract to be valid.  Reasonable notice is almost assuredly going to be more than an employer is going to want to pay to an employee in severance pay. The only way to avoid such a legal obligation is a legally valid employment contract. If you’re not sure that your contract is valid, now is the time to find out.