Employment contracts are becoming the biggest loophole in workplace law – but that loophole only works for employers.
Companies, with acute knowledge of how employment contracts can operate to their advantage, are increasingly requiring staff to sign one-sided agreements that reduce their legal rights.
These employees – most without any bargaining power, or worse, without an understanding of the law – often do not realize their legal interests are being undermined.
But if the law permits employers to do it, then why would they not try to prevent expensive lawsuits, large severance packages and competition from former employees, all with the stroke of a pen?
The result is the modern employment contract, replete with various employer-friendly terms. Employees now agree to be dismissed with minimum severance, demoted, put on probation and see their salaries slashed at their employer’s discretion – all without much recourse.
This practice is not illegal, but it is resulting in the mass reduction of some important employee rights.
Without a written contract, every employee is guaranteed a number of implied legal rights.
For example, the right to reasonable notice of termination, which prevents dismissal without notice or severance; the right to refuse adverse changes to compensation or position, from which constructive dismissals arise; and the right to compete freely with a former employer following departure.
These implied legal rights have been created by the courts over time, to ensure a measure of fairness.
But they are all subject to the terms of a written contract – meaning they can be reduced or eliminated altogether – if that is exactly what the contract says.
It may surprise many workers and employers, but the legal doctrine of freedom of contract, which gives employers the right to offer employment on all of their own terms, is still widely recognized.
Therefore, if a contract has been reviewed and executed before employment begins, an employee is often held to the deal that was struck, whether it was fair or not.
How do these contracts affect employees? One of my own cases provides an example. A group of workers came to see me after their company was purchased by another and they were told that unless they signed the new employer’s contract, they would no longer have jobs.
That wasn’t the real problem, however; it was that the contract they were told to sign eliminated any right to the more-generous severance packages their former employer owed them – and also stated that their work locations could be changed without their consent, an unusual term for a new contract.
The new employer’s plant was in another region, and the workers suspected they would be told to commute to that plant; according to the contract, if they refused , they would be viewed as resigning. Every one of them signed, despite my advice. Why? Because they would rather have bad contracts and keep their jobs than have no contracts but no jobs.
Despite this cautionary tale, employees are not entirely without recourse. Judges have created various devices to level the playing field, albeit slightly. If a contract is ambiguous, illegal, provides less than what is stipulated under employment standards law, or is entered into under duress or coercion, it may be set aside.
While these devices provide a level of protection, they still ignore some fundamental truths.
First, employees seldom dare to negotiate contracts; if they do, it’s rarely on an equal footing. Either they fear the job offer will be withdrawn, or they are told the language will not be changed. Employers, then, usually have their way.
What can workers do to protect themselves? Negotiate contracts from the outset.
Most employees feel comfortable negotiating their salary or vacation, two of the most important terms of work.
They should feel equally comfortable asking to remove unfavourable terms from a contract.
Have any employment contract reviewed by a lawyer and challenge its enforceability if it was signed under questionable circumstances. I have won in court by raising the inference that a signed contract was without proper consent – such findings are not exceptions.
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