The terms of a written employment contract can have significant consequences on the employment relationship and each party’s legal entitlements. While some of those terms outline legal rights during employment, other terms remain in force even after the employment relationship ends. Not all terms to an employment contract are created equal however – some may result in significant costs or increased risks for employers and employees. The top three terms to look for in an employment contract which have high impacts and should be evaluated carefully include: the termination clause, probation clause and non-solicit/non-compete clauses.
Termination Clause
One of the top three terms to look for in an employment contract is a termination clause outlines what severance an employee is entitled to upon termination with or without cause. Employees should be interested to know how much notice of termination or pay in lieu of such notice they would be entitled to under this provision. Employers would want to carefully draft their termination clause to ensure compliance with the law while restricting how much they would owe the employee in severance upon termination.
In Ontario, there are several grounds under which a termination clause can be rendered unenforceable if it is not properly drafted. This can include non-compliance with or attempting to contract out of the Employment Standards Act, or ambiguity in the wording of the termination clause. If a termination clause is held to be unenforceable an employee would then be entitled to common law reasonable notice upon termination without cause.
Probation Clause
A probationary period is a time frame where an employer may terminate an employee without owing them severance. This period is typically used by an employer to determine if an employee is suitable for the role they were hired for. A probation clause should set out the length of the probationary period and the employee’s severance entitlements in the event of a probationary release. Employers must expressly outline a probationary period as employment agreements as there is no probationary period by default.
In Ontario, employers generally have the freedom to set the length of a probationary period in their written employment agreements, though most are between three to six months. However, after three months or more of continuous employment, an employee would be entitled to notice of termination or pay in lieu of notice under the Employment Standards Act, and an employer cannot deny an employee those minimum entitlements if the probationary period is for more than three months.
Like a termination clause, if an employer does not carefully draft their probation clause it may be held to be unenforceable for non-compliance with or attempting to contract out of the Employment Standards Act, or ambiguity in the wording of the probation clause. This could result in a probationary release being deemed a termination without cause, allowing for an employee to seek their full severance entitlements.
Non-Solicit and Non-Compete Clauses
Another one of the top three terms to look for in an employment contract is the non-solicit clause. A non-solicit clause in an employment agreement prevents an employee from soliciting their employer’s clients, vendors and employees both during employment and after the employment relationship has ended. These are generally enforceable in Ontario so long as they are reasonable and are used to protect an employer’s business from harm. Employees may find themselves terminated and/or liable for damages if they breach an enforceable non-solicit clause during and after they end their employment relationship with an employer.
A non-compete clause in an employment agreement prevents an employee from competing with their employer’s business both during employment and after the employment relationship has ended. Non-compete clauses may be enforceable in Ontario if they are not too restrictive but are usually held to a higher standard for reasonability than non-solicit clauses. Like a non-solicit clause, an employee might find themselves terminated and/or liable for damages if they breach an enforceable non-complete clause during and after they end their employment relationship with an employer.
The drafting and review of a written employment agreement is dependent on the specific wording and context surrounding an employment contract. It is therefore best to consult an employment lawyer to minimize costs and risks relating to drafting and reviewing a written employment agreement.
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If you are an employer who is seeking information about drafting an employment contract, or an employee who wishes to have an employment contract reviewed before signing, our team of experienced legal professionals can help. Contact us by phone toll-free at 1 (866)508-2548 or email us at info@achkarlaw.com and we would be happy to assist.
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