Don't let this contract mistake cost your company millions

Don't let this contract mistake cost your company millions

Don If you’ve assumed the wording of your employment agreements is legally rock solid, you might want to take a closer look.

Many businesses are making small but costly mistakes through poorly-worded termination clauses, and by failing to get employees to sign on the dotted line ahead of time.

Those issues can leave companies on the hook for thousands – even millions – of dollars, in pay, benefits and other entitlements when a worker leaves the company.

“It's very common,” David Greenwood, a lawyer at Blaney McMurtry, says of companies failing to have employment agreements signed before the worker’s first day.

“I've got maybe six cases right now going on where this is an issue, and one is a very significant case where we're talking about a term where, if the argument is accepted, it gets the employee out of having to repay about $2.1 million.”

That's a major hit to any company's balance sheet – and one that can be easily avoided.

“Say 'we're going to send you an employment agreement – everything is subject to you agreeing to the employment agreement', and that would be  a standard thing. Make sure you get it to them before they show up for work,” Greenwood says.

“If [after starting work] they look at it, and say 'I don't agree with this', the court is always going to side with the employee.”

Greenwood’s also seeing termination clauses that are unenforceable – and costly – because “somebody has tried to get a little too artistic with the language”.

In reality, he says, simplicity rules.

“There is no magic to it. All you need to say is 'in the event your employment is terminated, you will receive any and all payments, benefits or entitlements required by the Employment Standards Act, as amended, or any successor legislation'. Full stop. That's it.”

Either shortcoming in a contract could leave your business liable for common law remedies – like paying out a lengthy notice period, even for workers who've only been at your company a short time.

“A lot of times, the [common law notice period] is probably three to six months … When you get into executives, six to nine months isn't unusual for a short-service person. I've seen cases where, on one year of service, they get 15 months.”

The overall advice from Greenwood is as simple as your termination clause needs to be.

“Make sure you're following the right process. Get this all sent out, signed, before the person starts, and make clear to them that the opportunity is contingent on accepting the terms and conditions in the written offer.”

Tips on drafting enforceable termination clauses will be shared at the Employment Law Masterclass on September 25, 2017


Related stories:
Court weighs in on termination clause
Bad drafting deems termination clause invalid