5 Reasons to Review Employment Contracts Right Now

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By: Samantha Seabrook and Rebecca Meharchand

Here are five reasons employers should have their employment contracts reviewed right now.

  1. Non-compete agreements are no longer allowed in employment contracts.

As of October 25, 2021, employers are prohibited from entering into new  non-compete agreements with employees. A non-compete agreement is an agreement between an employer and an employee that prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that is in competition with the employer’s business after the employment relationship between the employee and the employer ends, for whatever reason.

This prohibition does not apply to non-compete agreements entered into before October 25, 2021. This ban on non-compete agreements also does not apply with respect to an employee who is a chief executive. 

  1. As of October 1, 2022, minimum wage in Ontario is $15.50 per hour.

Even though it may seem trite and obvious, it is important for employers to include an employee’s correct earnings in their employment contract, and that includes employees making minimum wage. A court may find that an employment agreement is not valid if it does not comply with the minimum requirements of the Employment Standards Act

For employers in the restaurant industry, this is especially important, as the subminimum wage for liquor servers is no longer in effect. All employees, including those in liquor server positions, are now required to make at least $15.50 per hour.

  1. The Supreme Court of Canada has clarified that contractual discretion must be exercised in good faith.

In the decision of Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, the Supreme Court of Canada highlights that contractual discretion must be exercised in good faith. 

This duty applies to all contracts entered into in which a party has discretionary power, including employment contracts. The duty to exercise contractual discretion in good faith is obligatory in all contracts, even when the discretion is unfettered, cannot be contracted out of, and operates irrespective of the intention of the parties. 

The duty of good faith in contractual discretion requires the parties to exercise their discretion reasonably and not capriciously or arbitrarily. This has big implications for common employment practices, like discretionary bonuses. While the bonus is discretionary, an employer still has to exercise good faith in determining bonus entitlement or reasons why an employee is not entitled to a bonus.

Employers should have an employment lawyer look at their employment contracts and identify areas where employers retain the ability to exercise discretion. Once that is done, an employment lawyer can provide the employer with some examples of discretion in good faith vs. bad faith, and things to be mindful of when seeking to exercise employer discretion under their employment contracts.

  1. Public health restrictions are being lifted, and many are seeking a full or partial return to the office

As public health restrictions are lifted, more and more employers are looking at asking their employees to return to the office, either on a part time or full time basis. Employers should review their employment contracts for individuals who may have been hired during the COVID-19 pandemic to see what, if any, provisions need to be updated to ensure a compliant and proactive approach for returning employees to the office. If done improperly, an employee may have a claim for constructive dismissal, which is something we discuss more in a previous post.

  1. Best practice is to review your contracts and policies annually

The law about employment contracts, particularly about termination clauses and entitlements when someone is terminated, is constantly changing. It is best practice to have your employment contracts reviewed on an annual basis. This is also a reminder that many mandatory workplace policies are required to be reviewed annually. We offer a flat rate for employment contract and workplace policy reviews. 

Keep in mind that it’s now promotion and bonus season – which means bonuses and promotions can be fresh consideration for an existing employee to sign a new employment contract.

The above are just some examples of how employment law has changed in recent years. Contact us at Seabrook Workplace Law to review your employment contracts and ensure you are up to date.

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