Be Wary of the Employment Contract – Key Terms Affecting Employee Rights

| April 7th, 2017 | No Comments »

You just received that call, the one you have been sitting by the phone waiting for.  You have been offered the job of your dreams.  Everything is perfect. Shortly afterward, the company sends you a written offer letter or employment contract to formalize everything.  However, it contains many terms that were not specifically discussed during your pre-hire negotiations. While it is very tempting to cross your fingers and hope for the best when starting out this new and exciting relationship,  before signing on that dotted line, be wary of key terms that may impact your rights and obligations.

One of the major red flags to watch out for is the termination clause. While most individuals prefer not to think about  termination at the very beginning of a new and ideally long term employment relationship, this is one of the most contentious and litigated issues in employment law.   Typically, the termination clause is crafted by the employer specifically to protect the employer, not the employee.  In fact, you may be potentially giving up significant severance entitlements if the clause limits your rights to minimum employment standards legislation, or sets out a severance formula that slightly exceeds the minimum standard.  In fact, removing the termination clause altogether can in most instances be more favourable to the employee.

Another red flag is any restriction on incentive compensation or annual bonus payouts.  This is particularly critical if variable compensation forms a material part of your overall remuneration.  Many contracts indicate that bonus payouts will not be paid out at all, unless you are actively employed on the payout date, and will not paid out on termination.  This type of restriction can potentially result in forfeiture of your bonus entitlement, if you are laid off or terminated, before the annual bonus payout.  This can be true, even if you worked for the entire fiscal year and put in all that hard work to earn the bonus!   Similarly, if you are receiving restricted share units (RSUs), share grants or options, most often employers will include a similar restriction resulting in forfeiture of all unvested equity on termination. Verify the vesting schedule and any language that could impact your eligibility for ongoing vesting.

Additionally, there may be clauses, which could impact your rights and obligations, not only during the employment relationship but also afterward.  Many contracts contain post-employment non-solicitation or non-competition restrictions that purport to limit your ability to re-employ in your profession, or which might impact your ongoing relationship with clientele.   If enforceable, these can be extremely onerous obligations that you may owe your employer following your departure, and which may impact your re-employment prospects and marketability.

If you have any of these clauses in the written job offer, what should you do?   Get proper legal advice to determine how these provisions may impact your rights, if at all.   Secondly, negotiate!  Many employers present the contract as a ‘standard form’ document that “all” employees sign.  However, the reality is, anything is up for negotiation and there is really no downside to trying.   Before you negotiate, make sure you are adequately informed about your legal rights and have a negotiation strategy in place.

 

Author: Jonquille Pak, Employment Lawyer