All of us have likely read an article that outlines what should be included in an employment agreement. However, many such articles do not explain ‘why’ it is important that certain items or terms be included in an employment agreement to make it most effective. For the owner or operations head of a small or mid-sized business, it is critical that you understand ‘why’ certain conditions are needed in a contract to allow you to effectively and properly implement and enforce the terms.
Let’s take a look at a few of the less obvious, but very important, terms that should be included in an employment contract. While doing so, I will explain why these stipulations are important to small and mid-sized business owners and management.
Protection Against Constructive Dismissal
Small to mid-sized businesses need to constantly adapt and change to succeed. Very often, an employee that you hired a year ago will be doing very different duties today. Perhaps you will have a scenario where you require an employee to work different hours to sustain or grow operations. Maybe in an effort to increase efficiency you hire a senior manager, effectively displacing the authority of a few mid-level managers who you wish to retain.
All of these scenarios are examples of decisions which are routinely demanded of small to mid-sized businesses to survive in a competitive marketplace. Unfortunately, most employers do not realize that these operational decisions require that the employer provide the employee appropriate notice should the employee not agree with these changes to their job.
To unilaterally impose a meaningful change to work duties, schedule, authority, etc. could constitute constructive dismissal. In the case Farber vs. Royal Trust, Farber worked for Royal Trust Company for almost 20 years, most recently as a regional manager. As a result of restructuring, Farber was made a branch manager, given $40,000 and was changed to 100% commission.
The Supreme Court of Canada determined that a constructive dismissal occurred as the employer made a unilateral and fundamental change without notice or agreement of the employee. Farber was awarded $150,000.
Be sure to include a clause in your employment contracts which will allow you to make necessary operational decisions that do not constitute constructive dismissal.
Include the Requirement for Specific Occupational Requirements
In an ever more regulated environment, it has become commonplace for some types of employees to require specific licenses, certifications, etc. to be allowed to do a job. But what happens if an employee you hired to do a specific job, loses or no longer holds the license or certification that is required for them to legally perform their duties?
Take the case of Cowie vs Great Blue Heron Charity Casino in Port Perry where a security guard was terminated for frustration of contract because he failed to secure his license within the required time. This case was later heard by the Divisional Court of Ontario, who ruled that the doctrine of frustration of contract did indeed apply.
It is very important that employers ensure that the necessary licenses, certifications and other requirements as prescribed by law to perform a job are included in the employment contract as ongoing conditions of employment.
No organization, let alone small and mid-sized businesses, can afford to have confidential information shared without permission. Confidential and proprietary information can be invaluable to a company. If this type of information is exposed, it could cost the organization a great deal in lost clients, competitive advantage, and knowledge as well as damage to the organization’s reputation.
In a recent case an employee of an organization was forwarding confidential email from their company computer to their personal email address. The employee was later terminated for other reasons. It was subsequently discovered that this employee was using the confidential information to strategically prospect clients of his former employer. The Superior Court of Ontario found the employee to be in violation of the confidentiality clause in his employment agreement.