The employment agreement is the cornerstone document of the employment relationship. It sets out the terms and conditions of employment, and although employers are not required by law in Canada to provide employees with a written agreement doing so is highly recommended as it helps protect your business and is the cornerstone for a strong and positive employee-employer relationship.
Depending on the circumstances, an employee will either be covered by a collective employment agreement (negotiated between the employer and the union representing employees) or be covered by the Employment Standards Act and an individual employment agreement (negotiated between employer and employee).
Having a robust, well-written employment agreement helps ensure that both employer and employee clearly understand what their rights and obligations are, what is expected of them, and what they can expect from the other party.
This white paper takes an in-depth look at employment agreements, with a focus on the individual agreement, including what they are, what they should and shouldn’t contain, why you need to get them right, and some common mistakes organisations make.
An employment agreement is a legal agreement formed when an employer offers a person a job, and the person accepts it.
The agreement documents the relationship between the two parties, with the employee working for the employer under agreed terms and conditions, e.g. for a specified number of hours and rate of pay. It sets out the rights and responsibilities of both parties and that both parties have agreed to be bound by them.
As a baseline, an employment agreement should specific clauses (e.g. a description of the work to be done) and adhere to certain legal minimum rights and entitlements, such as minimum wage rates, paid vacation entitlements, and hours of work.
Regardless of whether employees has signed an employment agreement or their agreement provides less than the legal minimums, all employees are covered by the entitlements and protections in our employment laws.
The agreement is an essential tool for defining and guiding the employment relationship and provides evidence of the agreed terms and conditions of employment. The Employment Standards Acts provides some guidance but is limited in scope. The employment agreement fills in those missing pieces and ensures the employer's expectations are clearly laid out.
As mentioned, there are two types of employment agreements: collective and individual agreements.
Collective employment agreements are negotiated between registered unions (representing union members) and employers. Employees must be on the collective agreement if the role they are being hired into is included in the union.
Individual employment agreements are negotiated by an employer and an employee and should be signed by both parties.
Independent contractors are self-employed and deliver outcomes to their clients. They invoice the client for their work and are responsible for their own tax and Worker Compensation Board premiums.
This means the relationship is a business relationship, instead of an employment relationship, and subsequently covered by business laws instead of employment laws.
If your business engages contractors, you need to make sure the arrangement is legitimate, i.e. it is a genuine contracting situation rather than employment.
The following are general guidelines for Employment vs. Contractor agreements:
Employee | Contractor |
|---|---|
Works for one employer | Works for multiple clients |
Is paid for ours worked | Is paid for work produced |
Uses tools provided by the employer | Uses their own tools (computer, vehicle, etc.) |
Is paid through payroll | Invoices for work completed |
Has guaranteed work | Works on a project-by-project basis |
For contractor agreements, it is equally important to set the arrangement out in writing, clearly defining the terms of the agreement as that of a principal (the business) and the contractor.
There are a number of clauses that every individual employment agreement should contain:
The names of the employer and the employee.
A description of the work to be performed (provide a copy of the job description with the employment agreement).
The place of work.
The agreed hours.
The wage rate or salary payable and how it will be paid.
The nature of the employment - for example, if the employment is fixed-term or permanent.
How vacation will be managed (accrued or paid out on each pay cheque)
The employee's right to privacy and the employer's expectations around confidentiality
How overtime will be managed
How the termination of the employment relationship will be handled.
How disputes will be handled, should they come up.
In addition, we recommend adding best practice clauses into agreements to ensure you are covering your risk and being clear with employees. Some examples of this include additional benefits, cell phone allowances, and intellectual property.
Other agreed arrangements, such as a probationary period, a certain number of working hours, on-call availability, specific notice period requirements, or annual closedown provisions, should be clearly set out in clauses in the agreement.
Remember, an employment agreement can provide more generous terms and conditions than the minimum legal rights and entitlements, but it can’t leave an employee worse off. Employees are entitled to these minimums even if they agree to lesser terms and conditions in the employment agreement.
When drawing up an employment agreement, keep in mind that changing anything in the document later on requires a genuine reason for the change and consultation between both parties.
Because of this, we advise employers that aside from the provisions you are legally obliged to include, only add those that you’re sure you want to bind your workers to and that you want to be bound by.
Things that may need to be regularly reviewed or updated (e.g. performance measures, discretionary bonuses), or that apply to everyone in the organisation (e.g. code of conduct, workplace policies) are better issued as stand-alone documents or company policies or procedures, so you can alter them when needed.
Remember, too, that employment agreements must always comply with the latest employment and other relevant legislation, so review your agreements regularly and update them as appropriate. They’re a living document, and shouldn’t be left to languish in a filing cupboard somewhere.
Legally, the employment relationship starts when an employer makes an offer of employment and the employee accepts it. This can be over the phone, if you’ve made a verbal offer to a candidate, or in writing, if you’ve emailed or text them saying they’ve got the job.
That means you should draw up an individual agreement with your new employee and give it to them as part of the job offer.
Give the person time to consider the terms and conditions of employment, before they accept or reject it. They may have questions or want to negotiate different terms and conditions, e.g. the salary / wage or flexible work arrangements.
Once you are both happy with the agreement’s contents and the person accepts the job offer, get them to sign the agreement, give them a copy, and store a copy for future reference (having a specialised digital system will make the process much easier).
While the law in Canada does not require every employee to have a written employment agreement. However, once a person accepts a job offer from an employer, even if it’s verbal, the employment relationship has started and the employee is entitled to all legal minimum entitlements and protections.
Relying on a verbal agreement of employment is risky for both employer and employee, and may result in legal battles in the future if the employee contests the terms of their verbal agreement. Ideally, the process of negotiating and drawing up the employment agreement will raise any issues either party has with the terms and conditions before the employee begins work.
We have seen businesses including terms and conditions that don’t comply with legal minimums or mistakenly overlook important elements because they are in a hurry or don’t seek expert advice.
The employment agreement sets up and governs the employment relationship, so be thorough and transparent from the outset. Including something in the employment agreement that the employee didn’t agree to may make it unenforceable.
If there is ever any issue or dispute in an employment relationship, both parties are required to act in good faith and follow the resolution process that is documented in the employment agreement itself.
Firstly, the employer or employee should raise the issue with the other party, providing detail(s) of the breach and reference to the agreed conditions in the employment agreement. There should then be an opportunity to respond, followed by negotiation to find an acceptable solution.
The employer may be justified in taking disciplinary action (e.g. in the case of misconduct) or instigating performance management if the employee is not meeting agreed objectives.
If the employment relationship is healthy, problems should be able to be flagged and managed internally, but serious disagreements, noncompliance with minimum entitlements, or personal grievance claims may require mediation or legal resolution, e.g. by the Employment Relations Authority.
The process for changing an existing employment agreement depends on the reason for the changes and their scale.
If the change will materially affect the employee - for example, you need to reduce their hours of work, or you want their tasks and responsibilities to change. You will l need to consider whether the change could be considered constructive dismissal (when an employer makes a fundamental change to an employee's contract). If the change is significant enough, you may need to provide either notice or a severance payment in order to make the change. Smaller changes can usually be done through consultation with the employee to reach an agreement.
Once the change is agreed upon, an update to their employment agreement should be made with either a new agreement of a letter documenting the change. In the case of minor or temporary changes, a letter of variation might be a better option than redrafting the whole agreement.
Any amendment to employment legislation automatically overrides what an agreement contains Depending on the nature of the change, a new agreement may have to be issued or potentially, you’ll just need to include the new provision in new agreements going forward.
Otherwise, if the changes are coming from the employer, then an employee is not obliged to accept any changes to the terms and conditions of their employment agreement “just because”.
An employment agreement can be terminated by either the employee (by resigning) or the employer.
Regardless of what triggered the termination, the correct procedure must be followed to ensure the process is fair and reasonable. Depending on the circumstances, if an employee is dismissed or resigns, they may be entitled to be paid severance pay or be provided with notice equal to or above the employment standards minimums, depending on the level of their role and their length of service. They must be given their final payment, including any entitlements owed to them e.g. untaken annual leave.
While it may be tempting to think you can get someone to work at your company without creating a written employment agreement that you both sign, doing so will leave you seriously exposed legally.
MyHR works with many companies to ensure their employment agreements are clear and watertight, and we see some common errors that every business should avoid.
Under employment law, there are three main types of employees: permanent, fixed-term, or casual, and each person's employment agreement must match the type of work they do, the hours and frequency of their work, and other terms and conditions.
There's a clear difference between a casual and a part-time (permanent) employee: As soon as a person is required to work regular hours, no matter how few, they are not a casual. Also, don't use a fixed-term agreement to try a person out. Fixed-term employment should be for genuine business reasons, e.g. the work is seasonal, for a short-term project, or cover for parental leave.
Having an employee on a type of agreement that does not match the reality of their work could mean you face an employment dispute or other costs, including outstanding wages or stat holiday pay.
Even the most basic employment agreement needs to contain a number of legally-required clauses, e.g. the employer’s and employee’s names, a description of the work to be done, the agreed salary or wage rate.
The mandatory clauses aren’t extensive (as discussed) and it’s reasonably easy to ensure your employment agreements comply with the law. Because of this, Labour Inspectors can get pretty frustrated with businesses whose agreements don’t meet the basic requirements.
Also, if you ever found yourself in an employment dispute, an agreement without all the mandatory clauses may not provide the necessary legal protection
As an employer, you can’t ask your employees to agree to less than the minimum legal entitlements, e.g. minimum wage rates, paid annual and public holidays, paid rest and unpaid meal breaks.
All employment agreements must provide minimums to all employees, but even if you don’t include them or have terms in the employment agreement that don’t comply, the minimum rights are still legally binding.
If you are found to have breached them, you could owe your employee(s) unpaid wages or back pay for leave.
Remember, the employment agreement is the basis of the relationship between you and your employee. Having a watertight agreement will get you off to a good start and provide an honest foundation on which to build.
While the good old DIY approach might save time, taking an old template and applying it to all new employees can be risky.
Sure, most individual employment agreements can be quite similar for all your employees, but failing to tailor your agreements to the demands of each role may mean you miss important terms and conditions.
You don’t want to end up in an employment dispute and find the agreement doesn’t comply with employment regulations or isn’t binding. An administrative error because you recycled an old template won’t hold water as a defence.
Personalising the employment agreement will not only safeguard you from unnecessary risk, it will ensure it is specific to the position, the person, and the needs and goals of your business.
An employment agreement is based on mutual understanding and everything in it should be clearly understood by both parties.
Any ambiguity in the agreement could mean that your employee does not know what the business expects of them, and what their duties and obligations are.
If you agree to a probation period, a certain number of working hours, a schedule, on-call availability, or procedure for shift changes, these things should be clearly set out in clauses in the agreement.
Ensuring the terms and provisions are all clearly defined and match the reality of the job the person needs to do will ensure the employment agreement is robust, and will greatly reduce the likelihood of problems or disputes down the track.
As in all relationships, honesty and transparency are always the best policy.
Being clear is the overarching rule, but there are some areas where being too specific in the employment agreement could be a disadvantage.
A good rule of thumb is, aside from the provisions you are legally obliged to include, only add those that you are confident you want to bind your workers to and that you want to be bound by.
Individual employment agreements can be changed, but only if there is a genuine reason and both parties agree. Going back to tweak them over and over so they match the reality of the job could be laborious and may strain the relationship you have with your team members.
Once you’ve worked through the important clauses in an agreement, you might be tempted to include policies and procedures you want to be part of the business culture.
But before you do, think about whether you want to give the rules the permanence and legal weight of a binding clause. It may be better to create non-contractual policies and procedures that give you the flexibility to alter them if things in the business or wider industry change, rather than having to go through the process of changing the employment agreement.
Any policies and procedures that are contractually relevant, however, should be explicitly referenced in the agreement so a new employee knows they exist and that it’s part of their job to know and follow them, e.g. use of the company vehicle.
If you keep the clauses short and simple, they will be easier to understand and abide by.
Once you’ve created an employment agreement and you and your employee have signed it, you both must follow the obligations within it.
It may be tempting to take shortcuts in the workplace - for disciplinary reasons or if you feel your team should be more productive - but it's not good practice.
One of the guiding principles of the Employment Standards Acts is that the employer and the employee must act in good faith. Failure to adhere to the provisions of an employment agreement or failure to act in good faith could mean an employee could successfully challenge you with a grievance.
It’s much better to see the agreement as a foundation for quality employment relationships, and a building block for a workplace culture of cooperation, trust, and success.
Once the signed employment agreement is stored, it may sit to gather dust (or its digital equivalent), but it is much better to regularly review your agreements to ensure they stay compliant with all laws and regulations, e.g. increases in minimum wage rates.
Also, be sure to update the agreement if there are changes to the nature or terms of the job, e.g. if the hours of work change (this includes guaranteed hours, days of work, or start/finish times).
Remember, there must be a genuine reason for any changes and any amendments must be discussed with the employee and be made in writing.
Having the oversight of a qualified HR or employment expert will help ensure your agreements are clear, fit for purpose, and comply with all current legislation.
MyHR can help you create robust individual employment agreements that cover all the lawful minimums and the specific requirements of your organisation and every role within it.
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