Every employment relationship is governed by an employment contract, whether it is written, unwritten or contains elements of both. An employment contract sets out the terms and conditions of the employment relationship. In the absence of a written contract, the employment contract will be made up of the oral representations the parties have made. Additionally, many terms may be implied at common law if an employment contract is either unwritten or only partially written. Further, several terms may be required as a matter of statutory law.
In order to be enforceable, an employment contract must fulfill the essential elements of a binding contract at common law, and must not contravene any applicable legislation. A binding contract must be formed by offer, acceptance and consideration. In the case of most employment contracts, the consideration is the exchange of remuneration for work. Courts have found that continued employment is generally not sufficient consideration, unless there is evidence that the employer intended to dismiss the employee if the post-hire agreement was not executed.
Employment contracts are subject to increasingly close scrutiny in Canada and will not be enforceable if they do not comply with minimum employment standards, occupational health and safety legislation and human rights legislation. An employee cannot waive or contract out of his or her minimum entitlements under the applicable employment standards legislation. Any ambiguity in an employment contract will generally be interpreted in the employee’s favour by virtue of the application of the common law doctrine of contra proferentem.
Most employment agreements are for an indefinite term. In the absence of an express agreement to the contrary, an employment contract for an indefinite term can only be terminated by the employer by the provision of reasonable notice at common law. However, the parties may agree to limit the employee’s entitlements upon termination to the minimum entitlements provided for under the applicable employment standards legislation. In general, the statutory notice period is much shorter than the notice period at common law.
Where an employment agreement stipulates that employment will be for a fixed term, the employee may not be entitled to notice of termination if his or her employment is terminated when the contractual term expires. However, where an employee continues to be employed once the contractual term has expired, or where he or she continues to be employed by the same employer under consecutive fixed-term employment contracts, courts are likely to find that the employment contract was in substance one of indefinite duration such that notice of termination must be provided. Employment standards legislation may also establish maximum time frames for fixed term employment contracts to operate as such.
A probationary term will not be implied in an employment contract. If an employer wishes to hire an employee on a probationary basis to determine their suitability for the position, this should be clearly set out in a written employment contract. Employment standards legislation in most provinces does not require the provision of notice of termination or pay in lieu of notice for employees with less than three months of service. However, once a person has been employed for three months, the minimum notice requirements for termination will apply. Any agreement for a probationary period that exceeds three months should clearly state that the employee will be provided with his or her statutory entitlements upon termination.
All employees must be provided with notice of termination or pay in lieu thereof in accordance with the applicable employment standards legislation. Unless the parties have expressly agreed otherwise, there is a legal presumption that an employee will also be entitled to reasonable notice period under common law, which is intended to approximate the length of time it would likely take an employee to obtain similar employment. Factors that will be considered by an adjudicator in determining the appropriate notice period include: the character of employment; the employee’s length of service; the age of the employee; and the availability of other employment. The range of the notice period that may be awarded by a court generally may range from two or three months up to twenty-four months. In exceptional cases, a notice period exceeding twenty-four months may be awarded.
The parties may, however, agree that employment termination will be governed by the minimum applicable employment standards legislation rather than by the common law. If a written employment contract that is otherwise enforceable provides that the employee will receive only his or her minimum entitlements under the applicable statute, this may be sufficient to rebut the legal presumption that the employee is entitled to reasonable notice at common law.