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Don’t Forget to Grease that Wheel! The Importance of Regular Employment Contract Tune-Ups
March 11, 2024
The employment contract is like a map that directs the path for the employer-employee relationship. It lays out the ground rules for the journey, from the day an employee starts working for an organization, right up to the end of the road.
Reviewing and updating an organization’s employment contract regularly ensures that it remains a solid foundation for the employment relationship, providing clarity and protection, no matter what twists and turns lie ahead.
Here are a few reasons why regular reviews and updates are so important.
Clarity and Expectations
Employment agreements provide clarity to both the employer and the employee regarding roles, responsibilities, compensation, benefits, and other organizational expectations.
A clear and comprehensive agreement that reflects both parties’ intentions and understanding will help mitigate potential misunderstandings and minimize disputes down the road.
It also helps ensure alignment of the employer and employee’s expectations, all of which will help foster a more productive and harmonious work environment.
Changing Legal Landscape
The law is dynamic and constantly evolving with new regulations, precedents, and industry standards. This change is happening even more rapidly in the employment law space.
For example, in the 2020 Waksdale[1] Ontario Court of Appeal decision, the Court held that the employment agreement must be interpreted as a whole when determining whether any of the termination provisions in an employment agreement violate the Employment Standards Act, 2000 (ESA). Taking this holistic approach, if any termination clause in the employment contract is found to be unenforceable, the court will deem the entire provision illegal, and the employee will be awarded notice based on the common law. This finding invalidated the termination clauses in many employment contracts in existence at that time.
More recently, the Ontario Superior Court of Justice found in Dufault[2] that the termination clause in the plaintiff’s employment agreement contravened the ESA and was unenforceable for several reasons, one of which included that the provision allowed the employer to terminate the employee’s employment in its sole discretion and at any time. This ruling has the potential to be another Waksdale, in that if other courts follow it, it will invalidate many existing employment contracts.
These cases illustrate the need for periodic review of employment contracts to ensure they are not outdated and comply with current laws and practices to mitigate legal risks and potential liabilities for both parties involved.
Adapting to Organizational Changes
As an organization’s culture and business strategy change, its employment agreements should reflect those changes too.
Whether it is changes in business or market conditions, technological advancement, mergers, acquisitions, changes in leadership, or internal restructuring for efficiency or cost-saving purposes, all can result in organizational shifts that are required to remain relevant in the evolving business landscape.
Assessing and updating employment terms ensures the foundation of the employment agreement reflects those changes and aligns with the evolving ethos, needs and structure of the organization.
Best Practices
Seize control and refresh your employment agreements!
- Establish a dedicated process that includes legal experts, HR professionals and key stakeholders.
- Ensure the process prioritizes the thorough assessment of all provisions of the agreement, as well as policies, procedures, and culture considerations.
- Select a regular interval for review to ensure that agreements remain relevant and compliant with current laws and organizational needs.
- Clearly communicate with employees any changes made to their agreements as this will encourage transparency and trust within the workforce.
Regularly reviewing employment agreements not only keeps organizations legally compliant but also helps foster a culture of trust and fairness between employers and employees.
As essential as periodic maintenance is to keep a car running smoothly, the same holds true for periodic reviews of employment contracts; if the wheels of the employer-employee relationship are well-maintained, the outcome is a stronger and more cohesive work environment that is set up for continued success.
[1] Waksdale v. Swegon North America Inc., 2020 ONCA 391 (CanLII)
[2] Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029
