Better Safe Than Sorry – Top 5 Things to Include in Your Employment Contracts

Employment-Contract-1The employment relationship is very much like a marriage – in an ideal world, both parties enter the union filled with excitement and hope for the future. Neither person wants to contemplate the possibility that the relationship might someday end. But the sad fact is that employee dismissal is just as much a reality as divorce. And while it can be difficult for an employer to avoid the pain of such endings entirely, there are a number of things you can do to ease the suffering. Perhaps the smartest (and simplest) thing to do is plan ahead and cover off as many eventualities as possible in your employment contracts.  Think of these agreements as the “pre-nups” of the employment world.

With that in mind…here are the top 5 things every employer should include in its employee contracts to minimize confusion and liability, should the employment relationship come to an end:

  1. A well-drafted severance clause
    It goes without saying (but we’ll say it anyway) that every good employment contract needs a clause setting out the employee’s financial entitlement on termination.  But remember, these clauses need to be drafted with care to avoid any ambiguity or inconsistency with provincial legislation.

  2. A promise of confidentiality
    Every business has information that should remain “in-house.” When the employment relationship is going smoothly, employee loyalty helps keep such information confidential. Unfortunately, the possibility of disclosure, and of harm to your business, increases when the relationship ends. A contractual provision that describes a company’s proprietary information and requires the employee to maintain confidentiality during her employment and beyond can help protect the employer against the risks of an employee divulging valuable company information following dismissal.

  3. A reasonable non-competition clause
    Many employers assume that it’s necessary to obtain a promise from all employees not to compete with the employer’s business for a certain period, and within a certain region, following termination. Unfortunately, the courts tend to closely scrutinize and strike down such non-competition provisions if they are worded too broadly. Consider whether an agreement not to solicit clients or employees will suffice in a particular case.

  4. Clarity around bonus entitlement
    What happens if an employee is dismissed partway through the bonus year? How will any partially earned bonuses be dealt with upon termination? There are a number of options available to employers, but clarity is key.

  5. Your employee’s signature
    At the risk of stating the obvious, make sure to have a fully signed copy – by both parties – of the employment contract in your files before the employee starts work. Any significant time gap between the employment offer and signing the agreement could allow a subsequently fired employee to successfully argue that she did not receive adequate legal consideration from you in return for certain clauses of the contract.
  6. Employment-Contract-2

We hope you found these tips helpful and suggest you keep this list handy for the next time you need to instruct your legal counsel to draw up a new employee contract.

Have questions about how your current agreements stack up against our top 5? Interested in more employment law advice? Feel free to email us!

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