The Employment Contract

• Author: Netta Romano
• Pages: 107-145

107

The Employment

Contract

4

Learning Outcomes

After completing this chapter, you will be able to:

• Understand the advantages of a written employment

contract over an oral contract.

• Identify the legal requirements for a valid employ-

ment contract.

• Identify common express contractual terms.

• Explain the factors affecting the enforceability and

interpretation of employment contracts.

• List and describe implied contract terms regulating

the behaviour of employees and employers in the

workplace.

Introduction ........................ 108

Written Employment Contracts ........ 108

Formal Validity of a Contract .......... 109

Common Contractual Terms ........... 110

Enforceability and Interpretation

of Written Contracts .............. 124

Implied Terms ....................... 131

Further Reading ..................... 139

Key Terms .......................... 139

Review Questions ................... 139

Discussion Questions ................. 139

Appendix 4.1 Sample Employment

Contract ........................ 141

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108 EMPLOYMENT LAW FOR PARALEGALS

Introduction

Now that we have looked at the minimum statutory requirements regulating employ-

ment in Ontario, we turn to the many rules created by the common law. Recall from

Chapter 1 that a great deal of law comes from judicial decisions interpreting and apply-

ing legislation or “lling in the blanks” when legislation is silent on a matter. Frequently,

government legislators catch up and codify rules created in case law. This chapter looks

at the formal requirements of a valid contract, common express terms incontracts of

employment, and issues affecting the interpretation and enforceability of contracts. In

addition, it examines implied terms regulating the behaviour of employees and employ-

ers in the workplace.

Written Employment Contracts

Advantages of a Written Employment Contract

Despite the validity of an oral employment contract, a well-drafted written contract

offers a number of signicant benets, which are set out below.

1. Reduces Risk of Misunderstandings

By specifying the rights, obligations, and expectations of both the employer and the

employee, a written contract reduces the risk of misunderstandings that could lead to

disputes and lawsuits later on. It reects a common understanding of the terms and

conditions of employment that can always be referred to, even if the passage of time

or staff changes make it difcult to recall the actual agreement made by the parties.

1 RSO 1990, c S.19.

2 2002 CanLII 49619, 23 BLR (3d) 297 (Ont Sup Ct J).

3 T Mitchell, “Ask an Expert : Employment Contracts— Changes to Oral Contract,” Canadian Employment Law

Today (2 May 2012) at 2.

codify

enacting common law

into legislation

Occasionally a Written Contract Is Required

There are two exceptions to the rule that oral and writ-

ten contracts are equally binding. The first of these is

found under the Ontario Statute of Frauds,

1 a law that

requires certain types of contracts to be in writing. An

employment contract that is for a definite period of

time (that is, a fixed-term contract) that exceeds one

year must be in writing. The second exception is where

the parties negotiating an agreement clearly intend to

have a signed contract before their agreement becomes

enforceable. In Ross v Christian & Timber s Inc,

2 the offer

letter specifically stated that employment was condi-

tional on the employee’s executing a formal contract.

In that case, the Court found that there was no employ-

ment contract, even though the employee had worked

for several weeks, because no formal agreement had

been signed.

3

FYI

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CHAPTER 4 THE EMPLOYMENT CONTRACT 10 9

2. Addresses Contentious Issues Early

A written contract encourages the parties to deal with potentially contentious issues

early in their relationship, when they are usually positively disposed to one another.

Furthermore, because both the employer and the employee have a strong incentive to

reach an agreement that is mutually satisfactory, contentious issues are likely to be

dealt with in a constructive manner.

3. Reduces Uncertainty

If a dispute arises and the parties take the matter to court, a well-drafted written con-

tract provides the court with a clear record of the terms and conditions of employment.

In contrast, the terms of an oral agreement are those that a court nds the parties

agreed to and those that are implied by law. Where the matter in dispute relates to

terms agreed to, and an oral agreement was made, both parties will have the problem

of convincing the court that on a balance of probabilities, their version is the truest. For

example, the employer and employee may, after the start of employment, disagree on

how sales commissions are to be calculated. If the formula is not in writing, the parties

may end up in court trying to prove that their own recollection of the agreement is

more accurate than that of the other party.

Formal Validity of a Contract

A contract is a legally binding agreement, whether oral or in writing, representing a mutual

intention (or “meeting of the minds”) between two parties to enter into a relationship. In

law, certain criteria must exist before a court will enforce a contract. First, the parties must

have had the capacity to enter into a contract. A minor or a person suffering from a

mental impairment may not have the capacity to do so. Any document signed may ultim-

ately be found unenforceable if the terms are particularly unfavourable to that person or

if they did not understand the nature of the obligations they were taking on.

The second element of a valid contract is the intention to create a legally binding

agreement. Intent is generally assumed. If there is a dispute as to whether a party

intended to legally bind themselves, a court will look at all of the circumstances sur-

rounding the making of the agreement and consider whether a “reasonable person”

would assume that the parties intended to contract.

The third element of a legally enforceable contract has three parts:

1. an offer,

2. an acceptance of the offer, and

3. valid mutual consideration.

Offers of employment are often made by way of a letter to a job applicant and set

out the basic terms of the position. The candidate is advised to seek legal advice if

they wish and, if the terms are acceptable, sign the letter and return it to the employer.

When this is done, a contract of employment has been established.

Consideration is a more difcult concept, as it involves the exchange of something

of value from each party to the other. In the employment context, consideration is

usually provided by the promised exchange of payment for work performed. However,

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