An Ounce of Prevention…
By Robin Kersey
201 Portage Ave, Suite 2200 | Winnipeg, Manitoba R3B 3L3 | 1-855-483-7529 | www.tdslaw.com
An Ounce of Prevention…
A. INTRODUCTION
A significant percentage of the Canadian workforce is covered by very detailed, comprehensive agreements which
govern every aspect of their relationships with their employers – all those unionized workers in Canada who are
subject to current collective agreements. It is interesting, however, that a relatively small percentage of those who
are in positions senior to the unionized employees, or who work in a totally non-unionized environment, have
written employment agreements. This deficiency is a result of both resistance on the part of employers and
employees to entering into formal written agreements and a failure on the part of lawyers to market the virtues of
employment agreements.
The most compelling reason to enter into a written employment agreement is the same reason which causes most
other agreements to be recorded in writing – to ensure that the parties are ad idem and, most importantly, to
attempt to avoid disagreements later as to the relevant terms, by recording them in writing. Notwithstanding these
compelling advantages, employers and employees are often hesitant to engage in the process of negotiating written
agreements, for three main reasons:
The time and anticipated expense involved in doing so;
A lack of appreciation of the advantages of a written agreement; and
A desire (particularly on the part of the employee) to not appear to be suggesting that there is a lack of trust of the
other party.
Lawyers should address with their clients items 1 and 2 and convince their clients that the savings which can be
generated by a written employment agreement far outweigh the likely costs of negotiating and preparing the
agreement. It can be anticipated that, as written employment agreements become increasingly common, the level of
concern referred to in paragraph 3 will gradually dissipate.
B. TYPES OF EMPLOYMENT AGREEMENTS
When types of written employment agreements are considered, individual written contracts of employment and
collective agreements spring immediately to mind; however, there is a hybrid of those two which governs (or, more
precisely, may govern) the employment relationships of many Canadians – the Employee Handbook or, as it is
sometimes called, the Personnel Policy Manual
The Employee Handbook
The purpose of an Employee Handbook is to set out in one document all relevant corporate policies with respect to
employment issues. A well drafted Handbook enables the employer and the employee to have an accurate record of
most of the relevant terms governing the employment relationship. There are, however, two areas which should be
addressed in connection with the preparation and use of these Handbooks, as follows:
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The Handbook should be comprehensive and cover all aspects of the relationship. Typically, many handbooks
include the following topics:
A welcome from the President
The corporate history
The corporate mission statement
A corporate organization chart
An expression of corporate management philosophy
An equal opportunity, non-harassment statement
A description of employee classifications (i.e. full time and part time, etc.)
The probationary period
Pay period, deductions and other compensation policies
Profit sharing
Vacations
Sick leave
General holidays
Health, life, LTD and dental insurance policies
Pension plan
Employee discount program
Hours of work and overtime
Bereavement leave
Jury duty
Maternity and parental leave
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Employee relocation
Anti-nepotism policy
Dress code
Disciplinary procedures
Safety
Work rules
Attendance policies
Confidentiality
Substance abuse policy
Resignation
Dismissal
Acknowledgment of receipt
Of course, the topics covered and the contents of each Handbook will vary depending on the nature of the
organization. It is beyond the scope of this paper to address these areas individually; however, the subject of the
Acknowledgement of Receipt will be discussed further below.
The Handbook should be an enforceable legal document. Unfortunately (particularly from the perspective of the
employer), many are not.
As you prepare to defend a wrongful dismissal claim on behalf of a new client, the client may proudly report to you
that the employee is limited to a specified period of notice (e.g. one week per year of service) by virtue of the
corporation’s Employee Handbook. As you question the client as to the circumstances surrounding the use of the
Handbook, you may discover that this optimism is misplaced.
An Employee Handbook is only worthwhile, from a legal perspective, if it is binding on the employee. Many
employers have received rude surprises when they have attempted to enforce the terms of a Handbook without
having taken the necessary steps at the time of its provision to the employee involved.
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Simply publishing a Personnel Policy Handbook is not sufficient to define the legal relationship between the parties,
since the Courts have found that employees cannot be negatively affected by new terms of employment imposed
without the employee’s consent. For example, in Starcevich v. Woodward’s Limited (1991), 37 C.C.E.L. 46
(B.C.S.C.) the employer attempted to place reliance on a severance policy which had been promulgated in 1987 in
defending a wrongful dismissal claim by an employee who had commenced employment with that employer in
1983. In rejecting the employer’s position, the Court stated as follows:
Nor am I persuaded that a policy’ per se automatically forms part of an employee’s contract of employment. There
must be evidence that the policy was accepted by both the employer and the employee as a term of the employment
contract, and the onus in that respect rests on the party seeking to rely on the policy as a term of the contract.
If the defendant is correct in saying that the 1987 severance policy became a term of the plaintiff’s employment
when it was promulgated, then, in my view, the defendant is saying that it had the right to unilaterally impose a new
term of employment on the plaintiff long after the initial hiring. I know of no theory of contract law which suggests
that one party can unilaterally impose a contractual term on the other unless the other agrees to accept that term as
a term of his or her contract.
In order to avoid this result, it is suggested that employers proceed in the following manner with respect to the
hiring of new employees:
The prospective employee should be provided with a copy of the Employee Handbook at the time the offer of
employment is advanced;
As part of the employee’s acceptance of new employment, the employee should be required to sign an
acknowledgement (which can be incorporated in the employee’s acceptance of the position offered) to the following
effect:
I confirm that I have received a copy of the ABC Corporation Employee Handbook and I have read the Handbook. I
confirm that I accept employment on the terms and conditions set out in the Handbook.
In the case of implementation of a new Employee Handbook and its distribution to existing employees, it is
suggested that the employees be provided with copies of the Handbook and advised that it will be considered to be
in effect as of some date in the future. At that time, the Handbook may be conveyed to the employees with a memo
to the following effect:
Attached is an Employee Handbook which sets out in detail certain terms and conditions of employment with ABC
Corporation. This document will govern your employment relationship with ABC Corporation as of , 1998. If you
are unclear on the meaning or effect of any aspect of this document, please contact the Human Resources
Department or obtain independent legal advice.
Please confirm your acceptance of the terms set out in this document by signing the attached Acknowledgment and
returning it to your supervisor.
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In conjunction with issuance to the employees of the memo and the Employee Handbook, each employee should be
provided with an Acknowledgment, to read as follows:
I hereby confirm that I have received a copy of and read the ABC Corporation Employee Handbook and accept
continued employment on the terms and conditions set out therein.
If the foregoing steps are taken, the employer may then be in a position to successfully argue that the employee is
bound by the terms of the Handbook. Of course, if the Handbook is amended from time to time, the employee
should be given reasonable notice of any such amendment and should be required to provide written confirmation
of receipt and acceptance of any such changes.
Individual Contracts of Employment
There are two types of written individual contracts of employment, as follows:
(a) A ‘standard form’ contract, which the employer uses for most employees, simply changing the name, date and
salary amount prior to signature; and
(b) A contract prepared for a particular individual.
The Standard Form Contract
The terms contained in this form of agreement will be similar to those discussed below with respect to contracts
drafted for a particular individual; however, it is important to advise clients as to the proper use of a standard form
contract, to avoid the same problems in connection with enforcement as referred to above with respect to the use of
an Employee Handbook.
The false sense of security which may be generated by the use of a standard form agreement is illustrated by the well
known case of Francis v. Canadian Imperial Bank of Commerce (1994), 7 C.C.E.L. (2d) 1 (Ont. C.A.) wherein the
CIBC relied upon an employment agreement which provided that the plaintiff’s employment could be terminated
by the Bank upon three months’ written notice or payment in lieu thereof.
In Francis, the employee received an offer of employment by letter dated June 9, 1978, subject only to the
provision of a satisfactory reference. On June 15, 1978 the plaintiff unconditionally accepted the offer of
employment on the terms and conditions expressed in the letter of June 9. A satisfactory letter of reference was
obtained by the Bank prior to the start of the plaintiff’s employment.
On July 4, 1978 the plaintiff attended at work and was required to sign a number of documents, one of which was
the employment agreement. No reference was made to this agreement at any time during the plaintiff’s
employment.
In 1986 the plaintiff was dismissed and the issue was whether the employment agreement effectively varied the
implied term of reasonable notice at common law.
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Both the trial Judge and the Court of Appeal found that no consideration existed for the signing of the employment
agreement and, as a result, the plaintiff was not bound. The trial Judge expressed the rationale for this finding in the
following terms:
It has been long recognized in the jurisprudence that one party to an agreement cannot unilaterally attach to an
existing agreement a term diminishing the rights of a party already established under that agreement.{1}
Since the ‘existing agreement’ entitled the plaintiff to reasonable notice, the Bank was not permitted to rely on a
provision limiting that entitlement.
There is, of course, a simple solution to the difficulty experienced by the CIBC. Mr. Justice Weiler of the Court of
Appeal expressed such solution in the following terms, at p.12:
I would add that, in cases such as this, employers are able to incorporate the terms of a standard employment
agreement into the original contract of employment by saying in their offer of employment that the offer is
conditional upon the prospective employee agreeing to accept the terms of the employer’s standard form of
agreement, a copy of which could be enclosed with the offering letter.
In short, the same approach should be utilized with the use of a standard form of agreement as has been suggested
above in connection with an Employee Handbook.
The ‘Customized’ Written Employment Agreement
The use of individual contracts of employment has increased substantially during the last 20 years, primarily as a
result of employer concerns as to the periods of reasonable notice which were being awarded by the Courts. In
Manitoba, there have been several cases which have awarded 24 months as reasonable notice for employees with
service in excess of 20 years. In light of this potential exposure, more and more employers are seeing an advantage
in being in a position to rely on a contract which limits the employee’s recovery.
Of course, there are many other advantages to be gained by specifying the details of the arrangements between the
parties. Although many employment agreements contain unique terms, it is suggested that, in drafting an
employment agreement, consideration should be given to the basic terms set out below:
Recitals – Often an employment agreement will recite the mutual interest of the parties in the employee accepting
the position offered. If the employee is leaving secure employment, counsel for the employee may wish to have that
recorded in the recitals as well.
Confirmation of the Employment – The first provision in the employment agreement should state that the employer
has offered and the employee has accepted the relevant position, all on the terms and conditions set out in the
employment contract, i.e. this paragraph should simply confirm that the employee has been employed.
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Term of Agreement – Many employment agreements will contain a provision specifying a fixed term for the
agreement. Of course, such a provision should provide that the fixed term is subject to earlier termination in
accordance with the terms of the agreement.
Duties of the Employee – In this paragraph the parties should attempt to describe what duties the employee is to
perform (if necessary, by reference to an attached job description) and/or what the employee is expected to
accomplish. Although it is sometimes difficult to effectively capture in a document the expectations of the parties in
this area, it is important to attempt to do so. If the employee fails, the employer will wish to be in a position to
point to this paragraph as clearly establishing what the employee was to do. On the other hand, if the employer
substantially alters the requirements of the position, the employee may wish to be able to allege a constructive
dismissal. Therefore, it is in the interests of both parties to ensure that this provision is as accurate as possible.
Restrictions on Outside Activities – Most employment agreements contain a provision requiring the employee to
devote the whole of the employee’s time, attention, skill and efforts to the performance of the required duties and
restrict the employee from engaging in any other business or occupation without the consent of the employer.
Compensation – This is, obviously, an essential term and one that may require a considerable number of paragraphs
to cover all the elements of a modern compensation package, including the following:
The base salary, less statutory deductions, and the timing of payment should be addressed.
The parties should address the basis for escalation of any base salary, i.e. whether it is pursuant to a prescribed
formula or dependent on more subjective criteria. The parties should also indicate when a review of the
compensation will take place.
Many employment agreements contain provisions describing incentive payments, based either on the performance
of the organization or identifiable individual targets. In such clauses the parties should address when such bonus
payments will be made, to what extent, if any, the bonuses are discretionary and whether the employee will be
entitled to payment of bonus subsequent to termination of employment.
Many employees receive either a car allowance or provision of a leased automobile. The paragraph dealing with a
provision of a leased vehicle should specifically address the extent to which expenses will be covered by the
employer.
The employment agreement should cover in detail the benefits to which the employee is entitled. For a new
employee, it may be important that the waiting period for eligibility for benefits be waived and this subject should
be addressed. Some agreements simply indicate that the employee has the right to participate in the employer’s
benefits program, as it may be constituted from time to time. Presumably, the employee will be provided with a
benefits booklet at the time of signing of the employment agreement.
Some employees are granted stock options and the terms of such options should be described in detail.
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Some employees are entitled to either payment of or reimbursement for the costs associated with club
memberships. Again, care should be taken to indicate what costs will be covered (e.g. whether the employer will
cover only the annual dues or will also pay any transfer fees or share fees which may be associated with
membership).
On the subject of memberships, many employees also receive reimbursement in connection with professional fees
or membership in any associations in their area of expertise. Again, the agreement should specify the nature of the
fees which would be covered by the employer.
If the employee is relocating to accept new employment, there should be a detailed description of the expenses
which will be covered in connection with such relocation, e.g. legal fees and disbursements in connection with the
real estate transactions, land titles registration fees, moving costs, temporary accommodation costs and air
transportation costs.
Of course, the basis of the employee’s entitlement to vacation should be covered in the agreement.
Expiry, Termination or Renewal – This is one of the most important provisions for both parties. It is often also one
of the more difficult provisions for the parties to address. There are several areas which should be covered in this
provision, as follows:
If the agreement is expressed to be for a fixed term, the parties may wish to incorporate a trigger in connection with
renewal, on the basis that, if the renewal option is not exercised, the agreement will simply expire at the end of the
fixed term.
The parties should address the issue of termination for just cause. In this regard, some agreements purport to
provide a list of the events which will amount to just cause. It is respectfully submitted that such a list should be
avoided, unless there is a very clear indication at the commencement of such list that the list is not exhaustive. The
agreement should make it clear that, if just cause exists, the employer may terminate the employment of the
employee immediately, without notice or pay in lieu thereof. It is preferable not to stipulate that the ‘agreement’
will be terminated, since there may be provisions (e.g. confidentiality, non-competition) which the employer will
wish to have survive the termination of the employment.
One issue that should be addressed, whether under the heading of ‘just cause’ or separately, is the situation where
the employee suffers a mental or physical disability or illness which results in the employee being unable to
substantially perform the required duties for a certain time. Employers are being faced with an increasing number of
situations where employees are absent for extended periods of time (often as a result of stress) with no clear
prognosis as to a return date. The law in this area represents a potential minefield for an employer, as a result of the
case law in connection with both the duty to accommodate and the doctrine of frustration. Accordingly, a provision
which specifically addresses this issue and entitles the employer to terminate on that basis, is desirable.
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The termination provision should also address the notice to be provided in the event that the employer wishes to
terminate the employment and either does not wish to allege or cannot prove just cause. This is an area where a
properly drafted employment agreement may result in a significant saving for an employer. An express period of
notice or a formula which provides for a result which is at the low end of the common law range should result in the
employer both avoiding the costs of litigation and the uncertainties associated with the results of litigation.
It is important that the employer realize that these provisions should be revisited from time to time as the employee
progresses through the corporate structure. It is not unusual for the Courts to declare that an employee terminated
from a position as V.P. – Sales is not bound by the notice period set out in an employment agreement signed 15 or
20 years earlier when the employee accepted a position as a salesperson. These clauses must be reexamined at the
time of each promotion and/or with the passage of time.
Finally, this provision should address the giving of notice by the employee. Most agreements do not compel the
employee to match the notice required by the employer.
Confidential Information – Assuming that, during the course of employment, the employee will receive confidential
information, most agreements contain a provision prohibiting the employee from disclosing any such information to
any person other than for the purposes of the employer or using for any purpose such information. Similarly, if it is
anticipated that the employee will be involved in the development of potentially secret information or processes,
the agreement should address the ownership of such intellectual property.
Restrictive Covenants – Employment agreements often contain restrictive covenants limiting the employee, for a
specified period, from accepting certain employment or contacting certain customers. Such covenants are intended
to form the basis of injunctive relief and must be drafted as narrowly as possible to survive challenge at the time of
enforcement. The Courts will examine any restrictive covenant to determine if the duration of the restriction is too
long, if the covenant is too broadly defined with respect to what it prohibits the employee from doing and/or if the
covenant is too broad in a geographic sense. The Courts have drawn a significant distinction between restrictive
covenants in commercial situations and restrictive covenants in employer/employee situations (generally
interpreting the latter covenants against the employer) and, as a result, great care must be taken in order to draft a
covenant which will effectively protect the interests of the employer and also survive scrutiny by the Court.
Miscellaneous Clauses – As with most agreements, an employment agreement should contain a variety of standard
clauses, including the following:
A paragraph setting out the basis for provision of effective notice to the other party;
A paragraph providing that the agreement is binding upon and enures to the benefit of heirs, administrators,
successors and permitted assigns;
A provision requiring the parties to execute any further documents which may be necessary to carry out the intent
and purpose of the agreement;
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A paragraph providing that the agreement is to be construed and interpreted in accordance with the laws of
Manitoba;
A provision providing that any modification to the agreement must be in writing and signed by the parties;
If any of the provisions in the agreement might be subject to an effective challenge (e.g. the restrictive covenant) a
severability provision, providing that remaining provisions shall remain in full force and effect in the event that any
provision in the agreement is deemed void or invalid, should be included; and
A provision stipulating that the agreement is not assignable by the employee, although the employer may assign the
agreement, with notice to the employee.
One of the provisions which would ordinarily be included under the ‘miscellaneous’ heading has assumed greater
importance in recent years as a result of the increasing use of the concept of ‘wrongful hiring’. As a result of the
cases in that area, it may be very important that the employment agreement contain a provision such as the
following:
This agreement constitutes the entire agreement between the parties and supercedes any other agreements or
representations, either oral or written, express or implied, between the parties or by their representatives, with
respect to the subject matter hereof or in any way relating to or connected with the employment of the Employee
by the Employer.
In view of the variety of occupations which may be covered by employment agreements and the infinite number of
different arrangements that the parties may develop to govern their employment relationships, it is impossible to
create an exhaustive list of items which must be incorporated in any employment agreement; however, the
foregoing should provide a starting point in the consideration of the drafting of any such agreement.
FOOTNOTES********************************
{1} Francis v. Canadian Imperial Bank of Commerce (1992), 41 C.C.E.L. 37 at p.43
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DISCLAIMER
This article is presented for informational purposes only. The content does not constitute legal
advice or solicitation and does not create a solicitor client relationship. The views expressed are
solely the authors’ and should not be attributed to any other party, including Thompson Dorfman
Sweatman LLP (TDS), its affiliate companies or its clients. The authors make no guarantees
regarding the accuracy or adequacy of the information contained herein or linked to via this article.
The authors are not able to provide free legal advice. If you are seeking advice on specific matters,
please contact Don Douglas, CEO & Managing Partner at [email protected], or 204.934.2466.
Please be aware that any unsolicited information sent to the author(s) cannot be considered to be
solicitor-client privileged.
While care is taken to ensure the accuracy for the purposes stated, before relying upon these
articles, you should seek and be guided by legal advice based on your specific circumstances. We
would be pleased to provide you with our assistance on any of the issues raised in these articles.
ABOUT THE AUTHOR
Robin Kersey
Phone: 204.934.2501 | Email: [email protected] | Web: www.tdslaw.com/rmk
Robin graduated from the University of Manitoba Faculty of Law in 1979.
His practice is focused on provision of advice to and acting as counsel for
management in all areas of employment and labour law.
Robin acts as counsel for management before the courts, arbitrators, labour
boards and human rights tribunals and occasionally acts for senior executives
in connection with employment issues.
Robin is the Co-Chair of the firm’s Labour & Employment Practice group and is a member of the
Labour and Employment Group of Lex Mundi.
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