You’ve conducted an exhaustive search online and found the best clauses in order to draft your first employment contract. Several questions, however, remain. It’s not always easy to get it right … but above all, is the business sufficiently protected?
1. The basics, where to start?
a) Identifying the contract
The primary conditions of employment for an employee should be recorded in writing, whether it’s an accepted “offer of employment”, a “contract of employment”, a “letter of confirmation of hiring” or an “employment agreement”. The name of the contract itself is of little importance, as long as it refers to an employee who undertakes, in exchange for remuneration, to do work under the direction or control of the employer.
In reality, the type of contract depends on the facts and the main difficulty is determining whether there is truly an employment relationship or instead a client-service provider relationship (ex: a consultant). The difference is vital because it not only determines your contractual obligations, but your legal ones as well (ex: source deductions, various employer contributions, compliance with the Act respecting labour standards, etc.). There are a number of elements to consider, but the main criterion is legal subordination. If, for example, you manage someone’s performance, if that person cannot delegate work to a third person, if the person must get permission to take leave or vacation, you are likely dealing with an employer-employee relationship.
An employment contract, however, should afford the business all the flexibility needed to rapidly adjust to the market. Substantial changes by the business to the work conditions during the employment can give rise to an action for constructive dismissal.
It’s a good idea to include a clause allowing the employer to modify any work schedule or work shifts provided in the contract, at its discretion. An employer should also have this discretion with respect to the employment position or even the employee’s tasks and responsibilities (on top of the catch-all phrase “any and all related tasks”). There should also be a clause whereby the employee must comply with the corporate standards or policies, which the business may decide to revise. In general, the more detailed and precise the contract, the more limited the employer’s management rights may be.
c) Type of employment contract
Lastly, you must decide whether the employment contract should include a term, in the absence of which it will be a contract for an indeterminate term. The main issue here concerns the obligation to provide notice of termination of employment (or an indemnity in lieu thereof) and the reasons for termination. Except in cases of serious misconduct, an employer must provide notice of termination of employment if the contract is for an indeterminate term. The employer must also comply with several conditions pertaining to the reason for terminating the employment. A fixed-term contract automatically terminates when the term expires, except where the employee continues to work for five (5) consecutive days without opposition from the employer. However, an employer who terminates a fixed-term contract prematurely may have to pay the employee for the remaining contract term.
There is no legal probation period for employees even though they may only benefit from certain rights under the Act respecting labour standards after a period of three (3) months of uninterrupted service. The employer is not limited to a specific length of probation period, so it could last six (6) months to even one (1) year for a professional or a manager. And for greater flexibility, why not stipulate that the probation period may be extended?
2. Yes to restrictive covenants, but which ones and under what conditions?
a) Intellectual property rights
This clause can be particularly useful for technology or research and development companies, for key employees who create something for the benefit of the business. In theory, the Copyright Act provides that an employer is the first copyright owner of the work created by an employee in the course of employment. But what about works created outside business hours, using the employer’s tools? Or the moral rights associated with that work and the employee’s expected collaboration to allow the business to assert its copyright? These covenants should be precise and detailed so that the business is adequately protected.
b) Confidentiality of information
This type of clause is necessary in most cases. There should be a list of the confidential information to which the employee has access, a stipulation that he cannot use or disclose such information and that he must take all reasonable steps to keep it confidential. This obligation may be for an indefinite period, depending on the nature of the information.
Non-competition clauses are often invalidated by the courts. They are a considerable infringement of the right to freedom of work and cannot automatically be included in a contract of employment. Confidentiality and non-solicitation clauses might be sufficient to protect the employer’s legitimate interests.
Non-competition clauses must be clearly and precisely described. This type of clause may be necessary where the employee plays a key role, has close, regular contact with clients, has access to privileged or confidential information, whose disclosure to a competitor would be highly prejudicial, or where the employee is a scientist.
Such clauses should be limited as to time, place and type of employment. The conditions should be specifically described and reasonable. The term should cover the employment period and a period from three (3) months to one (1) year following the end of employment, except in exceptional circumstances. Note that the territory must be the one in which the employee carries out his duties or serves clients. It would be wise to establish a radius starting from a precise address or indicate the cities, or country or countries if this can be justified given the employee’s duties and the business activities. It is also a good idea to refer to the employee’s duties and clearly define the business activities. Note that the more unique a product, service or technology, the greater the possibility for the employer to designate a broader territory.
Non-solicitation clauses should seek mainly to prevent the employee from soliciting clients with whom they were in contact for a set period preceding the date of termination of employment. It would be useful to also prevent employees from soliciting employees they may be tempted to recruit. Although the jurisprudence is not unanimous, there are decisions stating that this type of clause is subject to the same conditions as non-competition clauses (i.e., limited as to time, place and type of employment).
Lastly, before you hire an employee, you should find out if the person is bound by any restrictive covenant to another employer. In certain cases, your business could find itself liable if the employee breaches any such obligations.