Employment Contracts: What you Need to Know Before you Sign

It is an all too common story. You prepared for the job interview. You got all of the questions right. All you have to do is sign on the bottom line and you do, because it is just a formality, isn't it? And you don't want to rock the boat before you even have your first day at work.

Something like the fictional sequence of events above will sound familiar to most people. It is very rare for employees to push back at the time of hire about the terms of their employment. However, you can expect that when an employer puts an employment contract in front of you, it is designed to protect the company's interests and not your own. The next time you have to consider signing an employment contract, watch out for these five key items:

1) Have you actually been called an Employee?

It has become common for companies to ask workers to come on board as "independent contractors." Sometimes the benefits of this arrangement are lauded to the worker in advance (i.e. tax breaks, etc.) and sometimes the first time you hear you are not officially to be an employee is when a contract is put to you to sign.

Be very careful before entering into any work arrangement where you will not be an employee. Independent contractors typically cannot collect employment insurance if dismissed and are not eligible for severance. Other benefits, like CPP contributions and pension plan membership, may also be put out of your reach.

2) Probationary Period

Probation is, at its simplest, a test period for employers prior to advancing an individual to full employment status. While on probation, no matter the length, employees may be restricted from certain benefits and (subject to statutory protections) can be let go with no to minimal severance. Not all probationary periods, in their terms and conditions, will be valid and legally enforceable. If you are presented with a probationary period, take some time to consider the implications and make yourself aware as to how it may impact you going forward in your new role.

3) Restrictive Covenants (Non-Solicitation and Non-Competition Clauses)

Restrictive covenants are designed to restrict your future job and business options. As such, they can have serious ramifications. Consider this not uncommon scenario: after six months on the job you are let go and told, due to a term in your employment contract, that you cannot work in your industry again for the next 12 months anywhere in the city where you live.

Before unwittingly tying your hands at the expense of future opportunities, consider whether you are willing to accept the terms of any restrictive covenant put to you for agreement. Moreover, as you can read here, many restrictive convents may prove unenforceable regardless of your signature.

4) Bonuses and Non-Salary Compensation

Bonuses, commissions, profit-sharing and other non-salaried forms of compensation can form a major part of a worker's income. However, they can often be quite nebulous when it comes to a clear understanding of how and when employees are entitled to receive these funds. Watch the small print. It is not uncommon for bonuses and commissions, for instance, to only be payable if you are in 'active' employment. As such, you may not be paid out what you believe you are owed if you are dismissed. Alternatively, that yearly bonus you have come to rely upon? That may actually be discretionary in nature.

5) Severance Entitlement

Often the number one reason lawyers advise employers to put employment contracts in place is to restrict the amount of severance owed to fired workers to the absolute lowest amount possible. While these provisions (often called "Termination Clauses") were once rare, today it is uncommon to find an employment agreement without one. These type of clauses alter the default rules for severance and can often dramatically reduce the payout workers can expect if they are let go.

For a simple example, an employee making $60,000.00 a year who was been with the company for 10 years might be owed $45,000.00 if they fired under the default (called "common law") protection. If there is a valid Termination Clause, however, a worker in that same situation may only walk away with $9,230.76.

What most employees forget is that employment contracts are negotiable. If you have been given a new employment contract and want it reviewed, please contact us directly at: 613-238-4430 or info@vwlawyers.ca.