Employers, it’s Time to Stress-Test your Employment Contracts

stress test1Employment contracts are serious business. Have you stress-tested yours lately?

In the case of Alsip v. Top Rollshutters Inc. dba Talius , the employer’s loosely drafted employment contract and failure to discuss key employment terms with a new employee before hiring resulted in a wrongful dismissal lawsuit, and a court order that the employer pay the fired employee $141,500.

Alsip v. Talius: A Difference of Opinion

Mr. Alsip began working as Talius’ Director of Sales in October 2012. 8 months later he was fired. When Talius offered him 2 months’ severance, he declined and sued them, arguing that he was actually entitled to 28 months compensation on termination (less any money he had earned from his new job).

The (significant) difference of opinion between employee and employer arose because of an ambiguity in the employee’s employment contract. The “contract” was in fact a perfunctory, one-page employment offer letter, containing a bullet-point list of employment terms, which the employee “agreed to and accepted” by signing at the bottom.

The confusion arose from two phrases found in the contract:

  • The statement that the employee’s position was “full-time and permanent”, and
  • The bullet point item stating that his compensation package included “a three year employment contract”.

The employee understood the contract to mean that he was guaranteed three years of employment, and if he was fired before those three years were up, he was entitled to be paid out to the end of the contract.

The employer, on the other hand, agreed that the employment was for a three year term, but believed it could fire the employee at any time during those three years, with reasonable notice.

stresstest3After reviewing and interpreting the contract, as well as the circumstances surrounding its signing, the court sided with Mr. Alsip. The court explained that, if the employer had wanted an early termination option, it should have specified this in the contract and discussed it with the plaintiff during negotiations.

Because the contract was unclear, the law required that the court interpret it in favour of the party who didn’t draft it – in this case, the employee.

Lesson for Employers

As employment lawyers, the two most common mistakes we see employers make when it comes to employment contracts are:

  • Not entering into a written agreement with their employees at all. Such employers miss out on an opportunity to limit their financial liability on dismissal, and to achieve clarity around all aspects of the employment relationship more generally.
  • Putting something in writing that actually does more harm than good (as in the Alsip case).

Many employers simply don’t realize the importance of formalizing their employment arrangements. Others engage in a cost-benefit analysis, and decide that the risk of an employee lawsuit is outweighed by the perceived cost of retaining an employment lawyer to draft its contracts.

Whatever the reason, we encourage employers to take the same approach to your employee contracts that you do to all your key business decisions: Gather and assess all the relevant data, then make a well-thought out, proactive choice, supported by a knowledgeable, experienced advisor.

The obvious lessons from the Alsip case are:

  • Your employment contracts should be transparent, clear, comprehensive, and accurately reflect the understandings and intentions of both you and your employees.
  • Take your employment contracts seriously. Even something as innocuous as an offer letter can be construed as an enforceable legal agreement.
  • Don’t try this at home. Unless you are an employment lawyer, it’s not your job to be writing these agreements. Focus on what you do best – running your business – and let a professional protect you and your organizations from the kind of costly mistake made by Talius.

Need help with your contracts? Contact us!

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NOT LEGAL ADVICE. Information made available on the Kent Employment Law website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action, based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. One of our lawyers would be pleased to discuss any specific legal concerns you may have.

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