Tips on enforceable employment agreements
February 21, 2023
You work hard to draft solid employment agreements for your organization. You ensure they capture the intended relationship between your organization and its valued members. You are careful that all new employees sign them before starting. But then you learn your employment agreements are not enforceable? Tragic!
It seems Ontario courts have been voiding employment agreements in recent years faster than you can say, “constructive dismissal.” In the 2020 case of Waksdale v. Swegon North America Inc., 2020 ONCA 391, the Ontario Court of Appeal decided a termination clause was unenforceable because the termination clause allowed the employer to fire someone without severance (or notice pay) for reasons that don’t constitute “cause” under the Employment Standards Act (ESA). Many courts following Waksdale found termination clauses void for similar reasons.
It seems more recently, as in Henderson v. Slavkin, 2022 ONSC 2964, courts are finding clauses that offend the ESA even outside the termination clauses of an employment agreement. In Henderson, the court found no issue with the termination clause itself, but found that the confidentiality and conflict-of-interest clauses stated that an employee could be fired without notice if those provisions were violated, which contradicts the ESA. Because those provisions were not ESA compliant, the court decided that the employment agreement as a whole was unenforceable.
So what should you do? Do away with employment agreements altogether? Not yet! Employment agreements are still useful to outline employment relationships and can still protect employers from paying more than they want at termination. But employers should consider these tips:
- Review agreements regularly: Waksdale and Henderson show that the law changes rapidly. So have your employment agreements reviewed at least annually. Especially watch out for changes to the law relating to termination clauses and post-employment restrictions (e.g., non-solicitation).
- Be careful when including employment policies: Make all your organization’s policies comply with the ESA, and especially if your organization refers to employment policies in the employment agreement. Have the employees sign and review employment policies before they start work.
- Keep termination clauses close together: Keep everything related to termination in the same place in your employment agreement. Since a problematic termination clause anywhere in the agreement can void the whole agreement, it makes sense to have them in one part of your agreement. This would help avoid the possibility of a voiding clause slipping by your notice, especially if edits to the agreement are made in the future.
- Get advice before making changes: To change or remove clauses in employment agreements, make sure to seek legal advice first. Even small changes can void contracts.