Your Business Should Use An Employment Contract

The liability difference between using an employment contract and not using an employment contract can be significant. Among other reasons to use an employment contract, using an employment contract versus not using an employment contract can mean the difference in hundreds of thousands of dollars in savings when it comes time to terminate an employee.

If an employer does not use an employment contract, in Canada, their employees are entitled to very generous “reasonable notice”. However, if an employer does use an employment contract, it can cap the amount of notice it must provide employees at the minimum amount permitted by law.

The following Ontario case is a demonstrative example of why employers should use employment contracts to save costs when terminating employees.

Court Awards Large Notice Period To Young Short Service Employee

In Humphrey v. Mene, the employee, Ms Humphrey, became employed by the company, Goldmoney, as a Director of Global Communications, in 2016. In 2018, Ms Humphrey was promoted to COO.

Ms Humphrey was 32 years old, and she worked with Goldmoney for approximately three years and was earning $90,000 when she was terminated in 2019.

Ms Humphrey was purported to be bound to an employment contract with Goldmoney. There was a termination provision in her employment agreement which limited her entitlement upon termination to the Employment Standards Act, 2000 minimums. When Goldmoney terminated Ms Humphrey’s employment, it relied on that employment contract to only pay her $2,283 in severance.

In turn, Ms Humphrey sued for wrongful dismissal, arguing that she should be entitled to 18 months of reasonable notice because the employment contract was void. Ms Humphrey argued the employment contract was void because it lacked consideration and/or because it was repudiated by the employer.

The court agreed that the employment contract was void for repudiation, putting Ms Humphrey in the position as if she had no employment contract at all and could therefore seek reasonable notice.

In the result, the court awarded Ms Humphrey twelve months' notice of termination, finding that with her age and skills, she would likely never find a COO position ever again. The court acknowledged this was an extraordinary notice period award for a young, three-year employee, but that the reality was that it would be near impossible for Ms Humphrey to find a comparable position.

Therefore, the court awarded Ms Humphrey $87,000 more in severance than if the employer had used an enforceable employment agreement limiting Ms Humphrey to a formula for notice reflecting the local minimum standards, underscoring the need for all employers to use proper employment contracts.

Heather makes it easy to build a local, professional employment contract from a lawyer made template.