Employment Contracts – Procedural Requirements
I have often written about the need for employers to have enforceable employment contracts. Employment contracts and the procedural steps necessary to ensure their enforceability are constantly evolving.
A recent decision of the Ontario Superior Court highlights the need for employers to keep up with these changes. The case of Buaron v AcuityAds Inc. is now causing a stir. Some employers see this decision as adding to their procedural requirements when hiring a new employee. While this may not be the case, it has certainly clarified the procedural steps necessary to protect an employer who sends a Letter of Offer and then follows up with a more detailed employment contract.
It has gradually been accepted by employers that employment contracts must be signed before an employee starts work. The basis for this requirement is the lack of consideration. If an employee is already hired and working, then nothing of value has been exchanged for signing the employment contract.
In AcuityAds, a prospective employee had numerous discussions with the hiring CEO. The CEO sent an email to the prospective employee detailing the results of negotiations. The email was titled “Offer Letter”. The Offer Letter set out the new employee’s salary, title, vacation and probationary period. It did not contain any termination provisions. The CEO referenced the need to sign some contracts later but did not stipulate that signing an employment contract was a precondition for commencing employment.
As it turned out, the employee did however sign an employment contract prior to actually commencing work. This employment contract contained a termination provision which only provided Employment Standards Act notice.
Some nine months later the employee was terminated for cost cutting reasons and only received the termination payment stipulated in the employment contract. The employee wanted more.
The employee argued that the employment contract was unenforceable because he had already agreed to terms in the Offer Letter. In other words, the Offer Letter was the employment contract and the document signed later (the more formal employment contract with the termination provision) was unenforceable for lack of consideration.
The Court agreed. The Court found that nothing of value was exchanged for signing the formal employment contract. As a result the Employer had to provide termination payments far greater than that stipulated in the employment contract.
Employers must be mindful that in the to and fro of employment negotiations they could be creating a contract which would negate later formal employment contracts. Therefore, if sending a Letter of Offer, make sure that a precondition to employment is the execution of an employment contract and include that employment contract with the Letter of Offer. Employers may see this requirement as adding another step to an already complicated hiring procedure. Given the AcuityAds decision, however, it is better to be safe than sorry.
The lawyers in LMR’s Employment and Labour Law group are able to assist employees and employers with Employment Contracts.[ssba]