The Contract of Employment

Chapter 3: The Contract of Employment
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.
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 | :
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.]

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