Are Employment Contracts Enforceable? (Canada)

The Law

In Ontario (and Canada), employment contracts, as a concept, are enforceable. However, only some employment contracts are enforceable. 

Employment contracts, as in written agreements setting out the terms and conditions of employment, are perfectly allowed, valid and enforceable on their own. 

In Canada, we follow the principle of Freedom To Contract. The rationale is that employers should be free to hire, fire and contract as they please to run their business efficiently and effectively on their terms, not by the whims of any one judge. Indeed, Canadian courts will generally enforce even the harshest of employment contracts. 

Nevertheless, an employment contract or its specific terms may be enforceable if there is a defect. 

What do we mean by defect? There are several kinds of defects that could make a specific employment contract unenforceable. Here are some non-exhaustive, leading examples of employment contract defects: 

How Employment Contracts Become Unenforceable 

1. The courts and the legislature have established that employment contracts must meet certain minimums. It is void if an employment contract attempts to contract a term or condition below a certain minimum.

For example, Ontario's Employment Standards Act provides a floor for notice and severance of termination. An Ontario employment contract template is permitted to stay at this floor or go above this floor. However, if an employment contract goes below this floor, it is void and unenforceable.  

For an even more straightforward example, take Ontario's law of vacation days. In Ontario, employers must give employees at least two weeks of annual vacation. Thus, if a contract purported to offer less than two weeks' vacation, it would be void. Even more obvious is the minimum wage. No contract can stipulate a wage less than minimum wage, and if one attempts to (which is not as uncommon as you would think when you consider shady commission-based employers), then it is void, and the minimum wage would be put in place by default.

2.  Next, employment contracts may not be enforceable because they contain vague and ambiguous language. If there is an employer-friendly clause in the employment contract with two or more reasonable interpretations, the ambiguity will be construed against the employer. In the result, the clause may be set aside or interpreted as essentially unenforceable. 

3.  There could also be some defect in the formation of the contract, making it unenforceable. For instance, there may be no quid-pro-quo as required in any contract. There could be no "fresh consideration" if the contract were given to the employee after she started work. Or, in rare cases, the contract (or one of its clauses) may have never been brought to the employee's attention. Rarer still is when the contract is unenforceable because the employee signed the contract with duress or undue influence. 

4.  Last but not least is when an employment contract is made enforceable because it or a clause contained in it is considered an overly broad restraint on trade. For instance, a non-competition clause purported to make an individual unemployable for an extended period in a large geographical region will be void. 

Conclusion: Enforceability of Employment Contracts

Employment contracts are enforceable. However, the contents of a specific employment contract can be unenforceable today or found to be unenforceable decades later with a change in the law. In other words, the written text of an employment contract can void an otherwise enforceable document. It's like the bad apple – one rotten one spoils the bunch.

Most challenging for employers is that employment law is constantly changing. Thus, an outstanding employment contract one day could be void the next. Judge-made common law can instantly make unenforceable a contract drafted by the most talented lawyers working for the largest employers in Canada, even if the contract at issue isn't even their own. This is how the common law works in Canada.

The litigation of the enforceability of employment contracts is the bread and butter of employment lawyers. Plaintiff lawyers' desks are filled with cases attempting to prove a termination clause is void to get more severance for their clients. Likewise, defendant lawyers' desks are filled with cases defending the termination clauses they drafted. Most wrongful dismissal cases don't go to court over the simple calculation of severance. Instead, they go to court to dispute the employment contract that purports to limit severance.

This is all to say employment contracts are enforceable as a concept, but there are countless reasons why a specific employment contract could be unenforceable. This article could be a whole textbook on issues that make employment contracts void.

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