What happens when your employment agreements are deemed unenforceable?

What happens when your employment agreements are deemed unenforceable?

What happens when your employment agreements are deemed unenforceable?
Over the last two years, CCP has blogged on a number of lower and appellant level court decisions where termination clauses in employment agreements have been struck down as unenforceable because they do not meet the minimum requirements under the Employment Standards Act, 2000. The solution for employers hiring new employees is pretty clear – get some legal advice from experts in employment law and make sure your termination clauses meet the more rigorous requirements mandated by the courts before you offer employment to anyone. But what about your existing employees? What does an employer do when faced with the reality that the employment contract they provided their employee ten years ago is now suddenly unenforceable?

Many misinformed employers simply draft new provisions and have their employees sign. Unfortunately, these new agreements are as unenforceable as the one the employer is trying to replace. Without proper “legal consideration” – the “I give you this in return for that” - the employment agreement will not be enforced if challenged after the employee is dismissed. In a new employment relationship the legal consideration necessary to create a binding agreement is already present – the employer is giving the employee a job and getting a signed agreement reducing its liability in return. But with existing employees the issues are unfortunately more complicated since the employer needs to “give” something to “get” the signed agreement. There are ways, however, to move existing employees onto employment agreements either where they didn’t sign one when they were hired or the contract they did sign proves to be unenforceable.

1. Changes to an Employee’s Terms and Conditions of Employment

Where an employer promotes an employee or moves them from part-time to full-time or from contract to permanent status, the change in employment status can be “fresh consideration” for an employment contract with enforceable termination provisions. Like all employment agreements, employers must be careful to present the employment agreement as a condition of the promotion or change in status, must be provided to the employee before the change takes place and must be given with enough time for the employee to seek independent legal advice if they so choose. Similarly, the introduction of a group benefit plan, pension plan or non-discretionary bonus plan can also provide the necessary consideration for a new employment agreement.

misinformed employers simply draft new provisions and have their employees sign. Unfortunately, these new agreements are as unenforceable as the one the employer is trying to replace. Without proper “legal consideration” – the “I give you this in return for that” - the employment agreement will not be enforced if challenged after the employee is dismissed. In a new employment relationship the legal consideration necessary to create a binding agreement is already present – the employer is giving the employee a job and getting a signed agreement reducing its liability in return. But with existing employees the issues are unfortunately more complicated since the employer needs to “give” something to “get” the signed agreement. There are ways, however, to move existing employees onto employment agreements either where they didn’t sign one when they were hired or the contract they did sign proves to be unenforceable.

2. Signing Bonuses

In certain circumstances, providing employees with signing bonuses in return for new termination language in their agreements can provide the fresh consideration necessary to create an enforceable agreement. Employers need to be clear that the signing bonus is conditional on agreeing to the new terms and make sure the transaction is properly documented. In this case as well, employees should be given time to consider their options and seek independent legal advice on the terms of the new termination language.

Giving Notice of the New Terms

In our opinion, the best way to amend existing employment agreements or put current employees on contracts who don’t have them is to give proper notice of the change to the terms and conditions of employment. This can be done on an individual basis by giving common law reasonable notice of the change, or it can be done with one effective date for all the employees based on the employee with the longest service in your organization. If, for example, you have 5 employees with 3, 4, 8, 10 and 12 years’ service, you would take the employee with the most service (12 years), determine their common law reasonable notice entitlement and then advise all of the employees that the new agreements will become effective on that date. There are many nuances involved in putting employees on contracts through working notice, including clear communication of the repercussions of not agreeing to the changes (termination of employment at the end of the notice period). However, when properly executed, effective working notice is the preferred method of creating the legal consideration necessary to ensure you have enforceable employment agreements in your workplace.


CCPartners has extensive experience advising employers on how to create enforceable employment agreements for new and existing employees. Click here for a list of lawyers who can help you determine if your contracts are enforceable and if not, how to ensure they are in the future.