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On the job

What you need to know about employment contracts Add to ...

Congratulations. After countless interviews, you've finally been offered your dream job. All that's left to do now, you're told, is sign the company's employment contract. You scan the document, and are quickly overwhelmed by the legalese. What to do? Do you sign now or risk losing the job if you don't?

Such scenarios are playing out across Canadian workplaces. Written employment contracts are a standard practice for high-level executives positions, but experts say they are increasingly becoming a condition of hire for every level of worker. What's more, such contracts are becoming more complex as employers seek to protect themselves from potential damages should the relationship go sour.

Blame it partly on the recession. A weak economy and the resulting layoffs had many companies paying out hefty severance packages, says Daniel Lublin, a workplace lawyer and partner with Whitten & Lublin LLP in Toronto who specializes in hiring and dismissals.

"It's a factor of experience. They're waking up to what can happen and they want to protect themselves and reduce the expense of terminations," he says.

"It's also just good employment hygiene," says Janice Rubin, a partner with Rubin Thomlinson LLP in Toronto. "[A written employment contract]sets out clearly what the deal is. It may not eliminate misunderstandings, but it certainly reduces them."

Typically an employment contract outlines both party's rights, duties and obligations. It can be a one-page offer or a 10-page tome, Ms. Rubin says.

Whatever form it takes, an employment contract can be intimidating. Here's what you need to know before you sign on the dotted line:

Review, review, review

Employment contacts are by nature filled with legal jargon difficult for the average person to comprehend. "Never sign anything you don't understand," Ms. Rubin advises.

But when presented with a contract, people often feel they are under pressure to act quickly or perhaps lose the job. "It's extremely hard to say no to a potential employer, because you want the job," Mr. Lublin says. What you need to remember, he adds, is that the company spent a lot of time and resources wooing you. It's unlikely that it will rescind the job offer if you ask for time to review the contract.

While there are no provisions in law that give you a grace period to examine the document, "it's a reasonable request to ask for time to review a contract, and obtain legal advice," Ms. Rubin notes. "If they say, 'No, you must sign now,' that should give you pause. That should tell you a lot about your prospective employer."

What the contract should cover

Besides basic elements such as your starting date, job title and duties and responsibilities, all aspects of your financial compensation should be clearly documented, particularly if your salary structure is complex, Ms. Rubin says. This includes base salary, raises you're promised, commissions, bonuses, stock options, profit sharing and how you will be compensated for overtime. "If you look at commission, for example, you want to know not just how much but when it's triggered; is it upon payment or when the deal is signed?" she says.

Make sure that the contact includes any special promises or considerations made to you. If you are being orally promised a promotion six months down the road along with a pay increase, or perhaps a move to the firm's New York office within the year, get it in writing. "Figure out what is important to you and make sure it's in the contract," Ms. Rubin says.

Other clauses that an employer will likely include are terms of termination, including severance and any post-employment restrictions.

Negotiate for better terms

Employment contracts often don't sufficiently protect an employee's interests, Mr. Lublin says. Worse, a contract might reduce or remove rights you are entitled to under law. "Oftentimes employers will say, 'This is the standard deal that everyone has to sign,' " he notes. But as with any contract, employment agreements can be negotiated, depending on the issue and whether you have leverage in the form of in-demand skills or experience or specialized knowledge. If there is something you don't like or is missing in the contract, ask for changes, Mr. Lublin says. "It can never hurt to try."

Red flags

One area to pay close attention to in a contract is the termination clause. Mr. Lublin says that many employers typically offer departing staff only the minimum severance required under the law. "However, without a contract, the vast majority of employees are entitled to more than the minimum and in some cases far greater than the minimum," he says.

Another area is post-employment restrictions, which can prevent you from competing with your former employer or soliciting customers, suppliers or former colleagues if your employment is terminated. Many employees unwittingly agree to unfavourable restrictions on their activities after they leave a company, Mr. Lublin says.

Alarm bells should also ring if you're asked to sign a new contract mid-stream, Ms. Rubin says. "If your employer presents you with a new contract, whether it's six months or a year later, be very careful to ensure that it doesn't take away something you're already entitled to."

Ties that bind

How binding is an employment contract? That depends. Generally, a written employment contract will be enforceable by both parties if it is fair and properly drafted, Mr. Lublin says.

Not surprisingly, Ms. Rubin says, "the provisions that generate the most traffic are what employees are entitled to upon termination and restrictive covenants post-employment."

Many factors can render a contract unenforceable by Canadian courts, she adds, including language deemed to be ambiguous or unclear, or if it can be shown that the employee signed the contract under duress.

If you're unsure of, or uneasy about, the terms of a contract, seek appropriate advice. "Much of my work is dedicated to undoing a bad contract that someone unknowingly signed years earlier," Mr. Lublin says.



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