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(Brett Rabideau/istockphoto)
(Brett Rabideau/istockphoto)

labour law

What to watch for before signing an employment contract Add to ...

It has been a long time since companies required employees to wear spats in the office or to work a half day on Saturday, but employment contracts in the the digital age still contain outmoded holdovers from the horse-and-buggy era.

Toronto employment lawyer David Whitten deals with the fallout of antiquated non-compete, severance and bonus clauses every day. “They’re not only unfair to employees, they become costly if you have to fight them when you leave an employer,” the partner in the firm Whitten & Lublin said in an interview.

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An advocate of streamlined, simplified contracts, he advises workers not to sign employment contracts that contain provisions in these areas:

NON-COMPETITION

What they say: These clauses restrict people who leave their job from taking another job in the same industry for a period of time after leaving the employer.

Why they’re outmoded: Non-compete clauses have become almost impossible to legally enforce. In an era of frequent job changes, and especially since the economic downturn, courts are recognizing that non-competition requirements constrain people’s ability to earn a living. However, job applicants can still be asked by potential employers if they had a non-compete agreement with the previous employer, which might put them out of the running for the new job.

What to do:Ask to have a non-compete clause removed before you sign an agreement.

MINIMUM SEVERANCE

What they say: These clauses say that if your job is terminated, the employer will pay only the minimum set out in provincial employment regulations

Why they’re outmoded: The minimums are inadequate, and are usually less than the amount a worker without an employment contract would be entitled to receive. For example, a contract that provides for severance according to the minimum provisions set out under Ontario law would give an employee only one week per year of service to a maximum of eight weeks, which is less than an employee with no contract at all would be entitled to under common law.

What to do: Employees should negotiate for severance that is more in line with common law provisions. A fair amount to consider would be the provincial minimum plus an extra one or two weeks per year of service.

DISCRETIONARY BONUSES

What they are: Most often, these clauses say an employee will be eligible for a bonus at the employer’s discretion, but do not go into any detail.

Why they’re outmoded: Employers like these vague provisions because they give companies greater flexibility in compensation. But by not defining why bonuses are given, and what employees have to do to earn them, such clauses can fail to provide the motivation they’re intended to generate. They can also raise suspicions of favouritism.

What to do: Ask to have the bonus pay process spelled out. Usually it is a percentage of salary given for meeting a target agreed to by management and the employee, which is regularly evaluated. When it’s spelled out, everyone it’s knows they’re working toward the same goals.

FULL-TIME AND ATTENTION

What they say: In effect, these clauses say an employee’s “full time and attention shall be devoted to the duties of this position.”

Why they’re outmoded: People now have many interests beyond work and they expect to be able to pursue them in their free time. As long as coaching in a hockey league or working as a volunteer with a charitable group doesn’t conflict with what you do at work, why should the employer care?

What to do: To avoid potential misunderstandings, employees should discuss outside interests with the employer. But they should ask to have any full-attention clauses stripped from the contract before signing.

LEGALESE

What they say: In past generations, employment agreements often read like they were drafted by Parliament, filled with “whereas” and “heretofore” and Latin phrases.

Why they’re outmoded: They may look legalistic, but courts have been ruling that if contracts are not in common language, they can’t be enforced because employees can argue that they did not understand what they were signing.

What to do: Before signing, employees should ask for clarification of clauses that are vague or obscure.

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THE LAWYER’S ROLE

Negotiating an employment contract should happen before you agree to take the job, and may involve using a lawyer.

“You can negotiate a contract at the outset of the relationship or you can sit on your hands and hope you don’t have to challenge issues after you’ve been terminated, said Toronto employment lawyer David Whitten.

“It gets a lot more complicated after the fact and it creates a lot of business for lawyers.”

A lawyer can serve as the bad cop in a negotiation, he said.

“The employee can come back and say ‘I really want this job, but I did my due diligence and this is what my lawyer told me to ask about.’”

It should require no more than two hours for a lawyer to review and give advice on a standard employment agreement, Mr. Whitten said. An executive contract that has negotiated terms such shareholders agreements and stock options will take longer.

Legal fees can range from $150 an hour to more than $700 an hour for a senior Bay Street lawyer.

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