The Contract of Employment

• Pages: 219-335

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Chapter 3: The Contract of Employment

3:100 INTRODUCTION

The contract of employment has been described as the cornerstone of the employment rela-

tionship. That undoubtedly remains true in the non-unionized sector, which accounts for

an increasing majority of the Canadian workforce. Legally speaking, no one can become the

employee of another without making a contract with that person or corporate entity. As we

will see in later chapters, the role of the individual contract of employment has been greatly

diminished in the unionized sector, but even there, a worker must enter into such a contract

in order to be covered by collective bargaining and a collective agreement.

However important the contract of employment may be as a legal phenomenon, the body

of law that interprets and applies it has not been very successful at delivering the benets

of industrial citizenship to workers in lower- to mid-income jobs. In part, this is because of

the limited nature of the substantive and procedural rights which the courts have accorded

to employees vis-à-vis their employers at common and civil law. From a practical standpoint,

it is probably even more attributable to the fact that the civil litigation process, which is the

main forum for the enforcement of the employment contract, is bedevilled by high costs and

long delays and provides a relatively restricted range of remedies. Generally speaking, only

higher-income managers and professionals can aord to enforce their rights in court. Even

highly paid employees can typically only enforce those rights after leaving employment, as

the law is primarily available after relationship breakdown, rather than providing legal mech-

anisms to help the parties navigate the relationship while it is underway. For a realistic pro-

tection of their workplace rights and interests, most other workers must look to employment

standards legislation (which we deal with in Chapter ) or to unionization and collective

bargaining (which we deal with in Chapters  to ). Indeed, it is largely the failure of the

common law employment contract to deliver workplace justice that has made unionization

and employment standards legislation necessary.

As a relationship of contract, with some exceptions, the employment relationship is treated

at common law as any other contract and governed by general contract law principles. Those

principles assume that a contract — whether it deals with a commercial transaction or with

an employment relationship — is a product of relatively free bargaining between parties with

relatively equal power who will negotiate terms of mutual benet. For most workers, how-

ever, this assumption will likely not be true; their employer may have the power to dictate

the terms of employment on a “take it or leave it” basis. Contract law speaks in the attractive

language of freedom of choice and consensus ad idem, but the reality is that that the position

of employees may be one of subordination, both before and after the making of the contract.

CHAPTER : THE CONTRAC T OF EMPLOYMENT

220

The principles of contract law assume that the terms of the parties’ bargain will reect

their actual intentions, express or implied. The role of the courts is traditionally limited to

enforcing the terms of the bargain; that role does not extend to imposing on the parties

obligations of the courts’ own making. In the employment context, however, judges have

fashioned a series of obligations implied by law to give content to the employment contract.

Those obligations reect judges’ views of what a fair employment relationship involves and

have changed over time, having regard to what they see as the “natural” content of the

employment relationship and the dictates of prevailing social values, whether those be fair-

ness between the parties or the requirements of ecient human resource management.

At the core of the employment relationship is the managerial prerogative — the employ-

er’s right to control the day-to-day functioning of the workplace. To give eect to this manag-

erial right, the courts deploy a series of implied rights to impose substantive obligations on

employees to respect and obey their employers, many of which are holdovers from feudal

employment regulation systems. In this sense, it can be argued that the courts have infused

a “status” element into the employment relationship, despite the predominantly contrac-

tual basis of that relationship. On the other hand, it can also be argued that, in recent years,

Canadian courts have made an eort to gradually move the common law of the contract of

employment in a direction that is more mindful of employee rights and interests, and have

crafted new implied terms to do so.

If the managerial prerogative is at the core of the employers’ rights, the right to reasonable

notice of dismissal, absent cause, is the primary measure of job security for employees. In other

words, at common law, an employee holds no contractual right to their job, but only a right to

be dismissed with reasonable notice, which they lose if they engage in misconduct constituting

cause. The common law model of dismissal is therefore a “reasonable notice” model. As will

be explored in Chapter , some Canadian jurisdictions have also developed statutory “just

cause” models of dismissal. A “just cause” model of dismissal oers higher job security and

dismissal protections to employees. Conversely, such a model decreases employers’ exibility,

because it is more dicult to terminate employees and shift the composition of the workforce.

The “just cause” model is the predominant model of dismissal in the United Kingdom. The

United States operates under the most exible or employer-friendly model of dismissal, which

is referred to as “at-will employment.” Under this model, employees are hired at will, and, with

some exceptions, either party may terminate the relationship at any time and for any reason.

The employment relationship is therefore understood at common law as a creature of

contract, although one with some special features. For some, the employment contract is

viewed as a relationship of freedom, because its creation and content is based on the indi-

vidual choice and agreement of the parties. Even if employees enjoy less bargaining power

than their employers, they are not obligated to enter into any particular employment rela-

tionship — they can choose between employers, and therefore still enjoy freedom over their

work choices. Others take a dierent view, and understand the employment contract as

creating a relationship of subordination, pointing to the illusory nature of “choice” in the

context of economic scarcity, high unemployment, and bargaining power imbalance. For an

overview of these two positions, see Claire Mummé, “Property in Labour and the Limits of

Contract” in Ugo Mattei & John Haskell, eds, Research Handbook on Political Economy and

the Law (Cheltenham, UK: Edward Elgar Publishing, ) –.

Introduction | :

221

The following texts examine the nature of the employment relationship and the conse-

quences of casting it as a contract.

Otto Kahn-Freund, “A Note on Status and Contract in British Labour Law” ()  Modern

Law Review  at  and –

The labour law of Great Britain shares with that of the other nations in our orbit of

civilisation two essential jurisprudential features: it is based on the contractual founda-

tion of the obligation to work and of the obligation to pay wages, and it is at the same

time permeated by a tendency to formulate and to enforce an ever-growing number of

imperative norms for the protection of the worker, norms which the parties to the con-

tract cannot validly set aside to the detriment of the economically weaker party. This dual

insistence on agreement as the legal basis of at least some of the essential rights and

obligations and on mandatory regulation as the source of the content of the relationship

has given rise to a jurisprudential dilemma which has so far not been clearly faced in

the literature on the subject.

The dilemma arises from the ambiguity of the term ‘status’ in general jurisprudence.

Contemporary writers are fond of reiterating that, under the impact of modern develop-

ments, Western society is moving from ‘contract’ to ‘status.’ This observation which has

been repeated almost mechanically on countless occasions is intended to signify that our

society and our law have taken a course in a direction opposite to that traced more than a

century ago by Sir Henry Sumner Maine, whose celebrated dictum about the displacement

of ‘status’ by ‘contract’ is often quoted, but seldom in full. Not infrequently one can sense

in the statement that the tendency diagnosed by Maine has been reversed, a conscious

or unconscious condemnation of a retrograde evolution. Did not Maine link his famous

remark with the analysis of what he called ‘progressive societies’? Does not the movement,

or rather the alleged movement, from ‘contract’ to ‘status’ constitute a ‘regression,’ a regres-

sion from the ‘liberal,’ ‘progressive’ environment of the nineteenth century to more primi-

tive forms of social organisation such as those described by Maine in his work? . . .

How can we explain the conceptual confusion between two legal phenomena as

dierent as the imposition of rights and duties irrespective of the volition of the person

concerned, and the shaping of a contractual relation into which he has freely entered?

Let us admit that in terms of legal policy there may but need not be a common factor.

This is the desire to protect persons who, not only, as Maine thought, owing to lack of

‘faculty of forming a judgment in their own interests,’ but also owing to inferior bar-

gaining power, are liable to be exploited by others. This policy underlies some of the

legal provisions or principles which, in Maine’s sense, belong to the area of ‘status.’ They

do underlie the law of infants, but certainly not that of aliens. But they also underlie

those rules which shape the content of contracts. Yet the legal techniques employed by

the two types of legal norms are so fundamentally dierent that their confusion needs

to be explained. Why, then, do English lawyers see a reversion to ‘status’ in rules which

leave the parties free to contract or not to contract, but restrict their freedom to contract

except on certain minimum terms?

[Reprinted by permission of Blackwell Publishers.]