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By Kevin MacNeill and Samantha Seabrook Going back to basics A few reminders about employment contracts. M ay 2013 saw Canada's highest new job growth in a decade. With this flurry of job creation, it may be a good idea for employers to get back to employment contract basics. Properly drafted employment contracts can be used to modify terms otherwise implied by law, institute terms that would not otherwise be implied, provide certainty to the parties, and create predictable termination costs. With that in mind, we offer some tips on developing enforceable employment contracts that provide stability and predictability to the employment relationship. A well-drafted employment contract provides a clear written record of the parties' agreement. Thus, the starting point of any good contract is to think about the terms that need to be addressed. For example, would you like to institute a probationary period? Do you require the ability to temporarily lay off employees? Do you require a background check before employment begins? If so, then these items should be addressed in your employment contract. Once the necessary terms have been identified, employers should keep in mind the following tips: • se language that is clear, understandU able, and explicit. Clear language increases the enforceability of the contract. • ive policies and ancillary documents G contractual force by specifically referencing them in the contract. Provide copies of these documents with the contract, and have employees give written acknowledgment they have read, understood, and agreed to abide by the policies. • ive employees time to review the G contract before signing. You should not accept employment contracts signed on the spot. Employers should also carefully consider whether restrictive covenants are needed. Superfluous restrictive covenants are rarely, if ever, enforceable and should therefore only be implemented if there is an identifiable business need. If you want to add non-solicitation or non-compete covenants to an employment contract consider the following tips: • void boilerplate language. Tailor the A covenant to the employee's role and position. • ink about the level of protection Th required not desired (i.e. avoid a noncompetition covenant if a non-solicitation covenant is sufficient). • Be specific. Identify any clients, custom ers, prospects, or key competitors that are the target of the restrictive covenant. • Make sure the terms are accurate and unambiguous. The goal of any termination clause is to make termination costs predictable by limiting the amount of notice, or pay in lieu, owed if the employee is terminated without cause. In order to rely on that predictability, employers should consider the following: • ermination clauses can be void if they T do not meet minimum statutory employment standards, or if at any point in time, the terms in the termination clause violate employment standards minimums. • Consider the formula for pay in lieu of notice: Do you want a flat amount or a formula that grows over time? Lumpsum payment or salary continuance? • How will the payment be calculated (i.e. base pay only, or a combination of base and other compensation)? If you want to limit notice pay to base salary this must be clearly addressed by including language that specifically states there is no right to earn a bonus, commissions, etc., beyond the end of the statutory notice period. Any such statement must be consistent with the employer's policies or plans. • If offering more than employment stan dards minimums consider requiring a "Full and Final Release" for amounts over and above the statutory minimum. While most employers think to check that notice of termination provisions comply with minimum statutory entitlements, there are other equally important considerations. For example, it is important to address the provision of benefits during the notice period. In a recent case, Stevens v. Sifton Properties Ltd., a court found the termination provision of an employment contract was void because the termination clause stated pay in lieu of notice was inclusive of "all … entitlements to compensation," and did not specifically include the provision of benefits during the notice period. This was the court's decision even though the employer in that case had actually maintained the plaintiff's benefits during the statutory notice period. Although we have some doubts about that decision, as it does not appear to consider or apply an established body of case law on the presumption of legality in contracts, better safe than sorry when drafting a new employment contract. Employers should also be aware that mitigation does not automatically apply when an employment contract stipulates a fixed-term notice period. If an employer wants to claw back the notice period if the employee mitigates, this must be explicitly stated in the employment contract. Undertaking an employment contract audit every two years should keep your contracts up to date. IH Kevin MacNeill is a partner and Samantha Seabrook an associate with Heenan Blaikie LLP in Toronto. w w w. c a n a d i a n law y er m a g . c o m / i n h o u s E august 2013 • 9

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