When Did You Last Review Your Employment Agreements?

19 Jul When Did You Last Review Your Employment Agreements?

Many businesses require employees to sign an employment agreement at the time of hiring. Then they file the agreement away with other paperwork and ignore it until a problem arises. This is not the right approach.

Changes in the legal and business environments can cause the terms of employment agreements to become obsolete rather quickly. To protect your business and legal interests, your employment contracts need to be updated regularly, and they need to be drafted by an attorney who understands the complexities of employment law.

Abrahams LLP helps clients implement custom employment agreements that meet legal requirements while providing maximum safeguards for your business.

Keeping Up with Legal Changes

Court decisions and new laws change the ground rules for employment agreements on a surprisingly frequent basis. Provisions that were once commonplace and enforceable may now no longer be enforceable.  This can happen within the span of only a year or two.  This happens regularly in employment law.  

For example, employment agreements that had a non-compete clause in them may now risk being held to be unenforceable as a whole in Ontario as a result of legislative changes passed by the Ontario government.  

If your employment agreement is more than a year old then it should be reviewed by employment counsel so that you can be advised on how to address the latest changes and look to bring it into compliance.  

To keep agreements in compliance with current requirements, it is a good idea to have employees sign a new agreement when warranted by the changes.  As employees must be given “fresh value” to sign the agreement a good opportunity to check on this point is at the year-end.  For example, if the employee is receiving any type of raise or promotion this can be a perfect opportunity to ask them to sign an updated agreement.

Why all the fuss though?  There are many reasons.  The main reason though is likely the prospect of substantially reducing liability for termination pay (which can be substantial) in the event that you have to part ways with the employee in the future.  It could be that your business has needed to scale back on fixed costs and positions are eliminated or the employee could need to be let go for performance issues.  In either case, there is a major difference between terminating an employee when you have an enforceable employment contract in place versus when you do not.  

How much of a difference?  In many circumstances, we could be talking about a 12x increase or more in the termination pay that the company would have to pay to an employee who has an enforceable agreement versus no agreement or one that is unenforceable (i.e. often no longer up to date).  

This factor alone is typically enough for our business clients to want to always do what they can to improve their chances of having their workforce have enforceable contracts which restrict termination pay to something more in line with the minimum amounts rather than the considerably more generous common law amounts.  

A New Employment Agreement Requires New Value

Employers cannot simply require employees to sign a new agreement as a condition to continue their employment. Instead, the employer must offer something of value—the contractual term is “consideration.” Fresh value is necessary each time a new contract is signed.

As mentioned, your company might ask employees to sign a new, updated agreement before getting a promotion or receiving a pay raise or other new benefits.  These offer great opportunities to have your employees get their agreements updated to be in compliance.  If they are not up for promotion or a raise you might offer an extra day of vacation or a bonus for signing a new agreement. There are many options, but the employee must receive something of value in exchange for their agreement to the new terms.

Your Employment Agreements Should Be Drafted by a Lawyer who has Experience in Employment Law

With the complexities and frequent changes in the enforceability of terms in employment agreements, these contracts need to be drafted by someone with a grounding in the subject. To draft an enforceable agreement, the lawyer must understand the current law, which is often changing, so that they are aware of which clauses have been held enforceable recently or not.  An employment agreement prepared by a corporate counsel without experience in employment law may seem virtually identical to the untrained eye, but what may seem like subtle differences in the phrasing can make all the difference in determining whether a court will enforce a term.  

The Team at Abrahams LLP Understands Employment Agreements

If you are just developing an employment agreement or need to update your agreements, Abrahams LLP has the knowledge and experience to craft the right terms to protect your interests. Talk to us to find out how we can help with your employment agreements or other commercial and legal needs.