Employment Contracts (Whether You Like Them or Not)

Employment Contracts (Whether You Like Them or Not)

 At the end of August, our new law firm will be half a year old. After a decade of practicing law in other peoples’ firms, I have to say, being the owner of the business is even better than I had expected. It’s not fewer hours, has just as many (but different) headaches, and the day to day law is no less challenging than being at a big global law firm.

But the difference is, the hours, headaches and challenges are mine to own, and mine to prioritize according to client needs rather than according to big infrastructure timelines and priorities. 

But then there’s all the administrative work.

Prioritizing Admin Work

In the flurry of start-up, I now get first-hand why certain things fall by the wayside, particularly those issues that are not in my core experience, skill or worse, interest. As a lawyer, we were careful about contracts and billings, but probably not as careful about other non-legal type issues that are equally important to the business.

Employment Contracts

For business owners without a law degree, it seems that the hassle of employment contracts is particularly onerous. In the start-up creative and tech space, I keep running across the word “trust”, and the notion that putting a fat employment contract in front of a highly recommended programmer, designer, etc. suggests there is some unspoken and suspicious wall between the parties.

Employment contracts do not need to be fat, full of legalese or half Latin. Business owner should, however, consider some piece of paper for each employee (signed before the employee starts) for one key reason: the common law amounts awarded by the courts in wrongful dismissal cases. 

Entitlements Upon Termination

In the absence of clear terms between the parties, the courts will interpret the implied and/or verbal contract in favour of the employee. There is always a contract in Canada, whether you write it down or it is implied or verbal between the parties. If the employer would like to end the employment relationship (for any reason, including lack of business), a contract can set out the friendly terms upon which to unwind the relationship, rather than handing the decision over to a judge.

If you are including equity or some sort of non-salary type payment in the compensation, a contract can also articulate what the expectations are upon termination – do all share entitlements end on the last day of employment?  Does the company have the right to buy back the shares so that you don’t have disgruntled ex-employees exercising shareholder rights?  Will the termination pay be more than the base salary or will it include commissions, bonuses, equity grants, car allowance, gym memberships, golf lessons? 

If the relationship ended on a sour note, there will be little appetite to fund the ex-employee’s aquafit. A simple and straightforward contract can sort out most of the entitlement issues while everyone is still friendly, which is always a far more civilized way to conduct business.

 For additional updates, please visit Lisa Stam's blog, Employment and Human Rights Law in Canada

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