A well-written employment contract is useful both for employees and employers.  If drafted with proper care and consideration, a written employment agreement serves to clarify the expectations for both parties during the term of employment, and at its end.  If drafted poorly, a written employment agreement, instead of limiting potential issues, may instead exacerbate them.

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Below, I have outlined a few common mistakes I have seen in my practice.

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Lack of Consideration

A common pitfall for employers arises when the employer attempts to put a new employment contract into place after an employee is already working for them, without offering anything to the employee in return.

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This is a problem, as when you modify a contract, failing to provide consideration (typically in the form of a raise, or a one-off bonus)  for the new agreement renders it unenforceable.  

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While the BC Court of Appeal in Rosas v Toca, 2018 BCCA 191 had appeared to suggest that consideration was not required to modify an existing contract, following Quach v Miltrux Services Ltd., 2020 BCCA 25, the law in BC appears to be that an employee must receive fresh consideration for a revised employment agreement to be binding.  Accordingly, if the employer fails to provide fresh consideration when putting such a contract in to place, the entire agreement can be found unenforceable.  

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Changed Substratum

Where an employment relationship evolves away from the position set out in a contract of employment, typically through change of role, increased compensation, or additional responsibilities, the court will sometimes hold that it would be unfair to apply an existing employment contract, on the basis that the ‘substratum’ of the employment agreement has changed.

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In such a case, unless the contract includes a clause which clearly and unequivocally shows that the contract was intended to be binding even if the substratum changes, the court will find that the terms of the written contract no longer apply, as circumstances are different than those contemplated by the parties at the time of contracting.  

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Clauses Contrary to Statute

The courts have made clear that employment contracts differ from other commercial agreements due to the importance of employment in a person’s life.  As a result, the court will often interpret agreements in a way designed to maximally protect an employee’s interests, particularly around termination clauses.

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Occasionally, employers will attempt to have an employee enter into an agreement which offers less than what an employee is entitled to under the applicable employment legislation; in BC, that legislation is typically (but not always), the BC Employment Standards Act.  In Machtinger v HOJ Industries Ltd., the Supreme Court of Canada held that, where parties attempt to contract out of the minimum termination notice period set out in the ESA, the termination clause is null and void, and the employee is instead entitled to common law notice.

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Drafting Errors

The use of imprecise language can make the result of a contract something other than what is initially intended by one (or both) of the parties.  

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By way of example, in the recent case of Briggs v ABC Insurance Solutions Inc., 2024 BCSC 1918, the employer and employer had entered into an agreement that read as follows:

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The Employee and the Employer agree that reasonable and sufficient notice of termination by the Employer is the greater of two (2) weeks or any minimum notice required by law.

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While the employer’s intent in drafting the clause was likely to restrict the employee to the minimum notice period under the ESA, the court in Briggs found that the reference to ‘minimum notice required by law’ created an ambiguity, as there was no clear reference to the ESA.  In light of the lack of clarity, the court found the clause was unenforceable.  In the result, instead of being entitled to only two weeks wages, the employer was found liable to pay the employee for 4.5 months of wages in lieu of notice.  

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Another error, particularly serious in the case of employees who receive bonuses, commissions, or shares that vest as part of their compensation, is where an employer uses imprecise language on whether bonuses remain payable during the period of reasonable notice.  In Koski v Terago Networks Inc., 2021 BCSC 117, the following clauses were found to create ambiguity as to whether a bonus was payable which vested during the period of reasonable notice:

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. . . any . . . reasonable notice period applicable to an employee who has been dismissed by the Company (whether with or without cause) that overlaps with a bonus payout date shall not be considered as satisfying the "actively employed" requirements of the Program.

. . .. As such, employees who have been terminated or who have resigned prior to the bonus payout date are not eligible for any bonus payments referenced herein.

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In the result, the employee was entitled to the bonus during the notice period, despite the employer’s arguments that the bonus plan, as drafted, made the employee ineligible.

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TAKEAWAYS

There are many potential issues which can arise when preparing employment contracts.

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Employers should consult with legal counsel before preparing a new employment contract or revising an existing contract, to ensure that the agreement  will be binding and will accomplish the goals they have in mind.  

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Employees who are being asked to signed an employment agreement should consult with a lawyer before doing so, so that they have a clear understanding of its impact on their legal rights.

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Note to Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter please contact one of our group members. We communicate all these updates to our clients and readers on our Employer Resources Portal and through monthly Newsletters.

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