Catherine E. Willson is Counsel in the law firm, Goldman Sloan Nash & Haber LLP, (www.gsnh.com) a full service law firm in Toronto, Ontario.
The termination of a long term employee can cost a business up to two years of salary, benefits, and pension payments for that employee. With the removal of the mandatory retirement age in Ontario, that liability has increased for everyone.
One way to mitigate this liability is through the use of employment contracts. A well drafted employment contract can limit the amount of money to be paid to a departing employee. Certain employers can limit their exposure on a termination to only eight weeks’ salary and other benefits in lieu of notice of termination.
In addition, employment contracts can be used to protect a business against the theft of corporate opportunity or staff by a departing employee. It is not unusual for a key employee to leave a company and take company clients, contract opportunities, and some of the better employees to his or her new business. Employment contracts can include non-solicitation clauses and protect company confidential information from this kind of poaching.
Because of the substantial restrictions placed on employees through employment contracts, the Courts review them very carefully before enforcing them. In particular, Courts will look at the specific wording of any termination clauses and paragraphs relating to non-solicitation of clients or employees and confidential information. If the paragraphs are drafted too broadly or are in another way improper, a Court may simply throw them out. Also, a Court will look at the circumstances surrounding the execution of the employment contract to ensure that the employee executed it in circumstances that were fair and legal.
Finally, the Court will look at the employment contract over the length of the employee’s service at the company and consider whether the employment contract is still enforceable having regard to the changes in the employee’s responsibilities at the company throughout the years. In fact, in a recent case out of B.C., the termination provision of an employment contract was thrown out because the employee’s job description changed fundamentally over the course of his employment and as a result, the employment contract was invalidated.
In summary, employment contracts are good for employers when utilized properly. They limit risk and reduce obligations to pay terminated employees following their departure. Caution must be exercised to ensure that the employment contract is properly drafted and it must be reviewed periodically to ensure that it still valid and enforceable.
These comments are of a general nature and not intended to provide legal advice.