“Show Me the Money!” “Show Me the Money!!” This became a very popular sound bite from the 1996 movie, Jerry Maguire. Chances are it will not likely be your opening statement during employment contract negotiations. What types of employment contracts are there and which one is best for you and your business?
Oral or Verbal Contracts
People often forget that an employment contract can exist even in the absence of a written document. A verbal or oral agreement contains the terms and conditions relating to an employment relationship between the parties based on their conduct and history. Implied terms developed from the common law or judge made law apply to the relationship such as an employee’s duty of confidentiality and reasonable notice of termination or pay in lieu thereof. The danger with this approach is that without a written document evidencing the agreed upon terms and conditions, disputes can easily arise and can be costly to resolve from the perspective of time and money.
Written Contracts – Indefinite Term
Most employment agreements are contracts of indefinite duration. In other words, the agreements evidence a relationship between the parties in which the employee will continue to be employed until the employee resigns from his/her employment or the employer terminates the staff member’s employment in accordance with its legal obligations. Contracts with an indefinite term can encompass both full-time or part-time employment situations.
Written Contracts – Fixed Term
In certain cases, employers may wish to hire employees on a temporary or fixed term basis. For instance, a business owner may need to hire for a short-term project, for seasonal work or they may wish to hire staff for their peak busy season. Retailers often do this as do many other industries.
A fixed term contract is a contract for a defined term with a defined end date. Often a term contract will provide for termination before the end of the term, and, so long as it complies with any relevant employment standards legislation, the contract can be terminated earlier by complying with the provisions of the applicable statute. Otherwise, if the contract is terminated before its term ends, there are two possible outcomes, which may or may not require the employer to pay out the contract to the end of the term. In one scenario, any payment by the employer to the end date is subject to the employee’s duty to mitigate, and in the other case, there is no such duty. The scenario that applies depends on the terms of the contract itself. It is clear, however, that unless specifically stated, the mitigation requirement will not be read into the agreement.
The more difficult issues arise when employers renew term contracts, resulting in a series of successive term contracts. Employment standards legislation will typically address this situation. Under Section 65(2) of the B.C. Employment Standards Act, if a staff member who is employed for a fixed term continues to be employed for at least 3 months after finishing the fixed term, then such employment will be deemed to have commenced at the beginning of the fixed term of employment.
A recent Quebec decision has followed the example set in many common law courts and found that, in many cases, a series of term contracts, one following the other, creates a long term common law contract requiring providing reasonable notice or pay in lieu thereof.
Some of the relevant factors in making this determination are as follows:
- Were Records of Employment (“ROEs”) provided at the end of each term? If ROEs were provided, and if there was a period of non-employment between terms, did the employee apply for and/or receive employment insurance benefits between terms?
- Were there any real negotiations prior to entering into each fresh term? Did the employee have any obligation to give notice that he or she would not be available for any successor term, or was no such notice required?
- Did the business owner have any obligation, express or implied, to give notice that there would be no successor term available, or was it understood that further employment may or may not be available? Did the issue of availability relate to circumstances over which the business owner had little or no control? Were any verbal assurances given by the business owner?
As you can see, fixed term contracts can trigger an assortment of legal issues if they are not properly structured and detailed in their scope.
Which contract is best for your business? The answer will no doubt depend on the nature of your business, your staffing needs and your budget.
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*The content of this article is intended to provide a general guide to the subject matter and should not be relied upon as legal advice. Custom legal advice should be sought about your specific circumstances.