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Employment Contracts 101


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A primer on employment contracts from Melanie Polowin, employment and labour lawyer at Gowling Lafleur Henderson LLP in Ottawa.

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Employment Contracts 101

  1. 1. Presented by: Melanie Polowin Start-up Garage: Employment Contracts 101 February 15, 2012
  2. 2. 2 Under common law (everywhere except Quebec), as a general rule, the employment/worker relationship is normally governed by the common law of the province where the employee/worker primarily works. For Quebec-based employment, the Civil Code applies. Similarly, the applicable health & safety, privacy, human rights, worker’s compensation, and employment standards legislation will be that of the province where the employee/worker primarily works. Whose law is it, anyhow?
  3. 3. 3 Employees may be: • full-time, part-time, or casual (as-asked/as-accepted) • permanent (no end date) or temporary (fixed end date) • unintended (unpaid co-ops or so-called volunteers) • misclassified (consultants/independent contractors who don’t meet the legal tests for that classification). Sad truth: what you think may not match what the law says. So….think workers. Who is (not) an employee, anyhow?
  4. 4. 4 FIRST, PROTECT CONFIDENTIALITY AND IP RIGHTS Job #1 is to protect confidentiality and IP ownership with every single worker, every single time, in writing. No exceptions. So…you need NDA/IP Agreements with all your workers (paid or not; family, friend or stranger; founder to janitor). If you can only afford to do one thing right – do this!!! Bottom line: what do you need?
  5. 5. 5 PROTECT AGAINST/CONTROL EMPLOYER LIABILITIES Job #2 is to control risks, by protecting the company against avoidable liabilities, and understanding your unavoidable liabilities. You can only control risks effectively by doing it in writing. So…you need some form of written agreement with each of your workers. The agreement you need depends on the type of worker. Bottom line: what do you need?
  6. 6. 6 To be enforceable, employment/worker contracts must be: 1. well-written (good content) 2. properly signed up (good process) 3. and even then…..they must be preserved over time if things change. Employment/Worker Contracts
  7. 7. 7 The main enemies of enforceable contracts are: 1. sloppy content 2. gaps in the process 3. lapse (invalidation) over time. Enemies of Enforceability
  8. 8. 8 Paperless (oral) offer by Company + Acceptance by Worker = The Invisible Contract An employment/worker contract automatically comes into existence at the point that the worker is offered, and accepts, a job. The law automatically implies (“writes in”) certain “invisible” terms into every employment/worker contract. To reduce the serious risks associated with “invisible” terms, you need enforceable contracts. Problem #1: The Invisible Contract
  9. 9. 9 Problem #1: The Invisible Contract What are employment/worker contracts made of? 1. Bones Mandatory statutory terms (unavoidable liabilities) • human rights; labour/employment standards (“Employment Standards”); health and safety; privacy (where legislation exists) 2. Flesh Judge-made (common law) terms, tests and rules • the legal baseline • some risks are avoidable if you use proper contracts • some rules and tests are unavoidable • tests for post-employment non-competition and non- solicitation restrictions • test for independent contractor vs. employee vs. volunteer • proper process rules for contract sign-up 3. Clothing External contractual terms (used for risk-reduction and liability control) • offer letters, formal contracts (formality is irrelevant) • courts often treat handbooks, policies, guidelines and practices as part of the contract – typically, only if pro-worker
  10. 10. 10 Timing is everything: Bad: Oral Offer ‣ Oral Acceptance ‣ Start Work ‣ Paper As Bad: Oral Offer ‣ Oral Acceptance ‣ Paper ‣ Start Work Almost As Bad: Paper Offer ‣ Short Deadline ‣ Start Work Key terms and key agreements need to be part of an offer package to be sent out and signed back (after a reasonable deadline) before the start date. Problem #2: Proper Process
  11. 11. 11 Problem #2: Proper Process Ideal process is: CRITICAL: make candidate sign and return an NDA if confidential info will be disclosed in interview/discussion/negotiation stage 1st interview/discussion/negotiation stage 2nd offer package is sent with a reasonable signing deadline 3rd employee/worker signs all documents and returns them - especially employee/worker NDA/IP Agreement 4th any pre-conditions (e.g. valid work visa) are satisfied LAST employee/worker starts work.
  12. 12. 12 Problem #2: Proper Process Proper process means: 1. you can prove employee/worker received all key documents before employment/work began; and, 2. you can also prove employee/worker signed and returned NDA/IP Agreement and contract, before employment work began; and, 3. you can also prove that you gave employee/worker a reasonable signing deadline (at least 2 clear business days).
  13. 13. 13 Problem #3: What Kind of Worker? Calling somebody a consultant or volunteer does not necessarily make it so. The correct classification makes a huge difference to both sides, in terms of: • obligations and entitlements owed to/by each other • obligations owed to “third parties” (including the dreaded Taxman). Classification tests are unavoidable. No single test/list of questions determines if an arrangement will always qualify as a true consulting or true volunteer relationship. Different laws/government agencies have different mandates…so test results can differ too!
  14. 14. 14 Problem #3: What Kind of Worker? 3 possible legal outcomes: 1. independent contractor or true volunteer – no problem! 2. dependent contractor – termination entitlements may be a problem, but individual is not an employee 3. deemed employee – lots of problems! Know the risks. Choose wisely. Reduce/control risks by using the right documents.
  15. 15. 15 Problem #4: Parting Ways “Reasonable Notice” is the most expensive invisible term. When an employer terminates without cause, if there is no enforceable written termination provision in a contract, the employer must provide a “reasonable” period of advance notice of termination (“reasonable notice”) or else provide compensation in lieu. Compensation in lieu includes all of the compensation elements and benefits employee would have received if he/she had stayed until the last day of the reasonable notice period. Reasonable notice is the legal default position, not Employment Standards.
  16. 16. 16 Problem #4: Parting Ways Just how long is a “reasonable” period? • it depends - there is no “blue book” • there is no automatic “free trial” (probation) • Employment Standards legislation sets an unavoidable “floor” for statutory notice and statutory severance • reasonable notice sets a (somewhat avoidable) “ceiling” - and it is almost always much more expensive than Employment Standards.
  17. 17. 17 Problem #4: Parting Ways Reasonable notice costs employers time, money, and effort. Reasonable notice gives others control over outcomes. You can only reduce risks and improve the odds for a better outcome by using a well written termination provision in a properly signed-up contract. That’s why enforceability is so important!
  18. 18. 18 Problem #4: Parting Ways Sad Truths: 1. Even when you use a well-written explicit termination provision - poor process or lapse problems can render it unenforceable. 2. If you mess with recommended provisions and/or with recommended process, there will be hidden liabilities/risks. Start off right. Get help at the beginning, with contracts and process. Then stay on track. Don’t deviate from recommended contract terms or recommended process without conferring in advance with your advisor. Check before changing.
  19. 19. 19 Problem #5: Protecting Confidentiality and IP More Sad Truths: 1. In the “invisible contract” your confidential information has limited automatic protection. 2. In the “invisible contract” you have limited automatic ownership rights to discoveries, inventions, development and creations made by employees during and in the course of employment. 3. In the “invisible contract” you have no automatic ownership rights to work produced by consultants and volunteers. You can only properly protect confidential information and proprietary property/IP risks by using well written provisions in a properly signed-up NDA/IP Agreement. That’s why enforceability is so important!
  20. 20. 20 Problem #5: Protecting Confidentiality and IP Never disclose confidential info at the interview/discussion or negotiation stages, without a signed NDA. What you make the candidate sign before negotiations will be different than what you make the worker sign as part of the offer package. Sign-up everyone before they start work. Don’t use or rely on the same form for all situations. There will have to be some differences.
  21. 21. 21 Problem #5: Protecting Confidentiality and IP NEWCO CONFIDENTIALITY AND OWNERSHIP OF PROPRIETARY PROPERTY AGREEMENT (“NDA/IP Agreement”) Unpaid co-op or volunteer version FirstName LastName (“you”), in consideration of the valuable work experience that you will gain during your unpaid [co-op placement] [volunteer placement] (“Placement”) with Newco (the “Company”) (which you acknowledge is good and sufficient consideration), agree as follows: 1. Accepting the Placement…. 2. In the course of your Placement…. Employee or consultant version FirstName LastName (“you”), in consideration of your employment or engagement with Newco (the “Company”) (which you acknowledge is good and sufficient consideration), agree as follows: 1. Accepting employment or engagement…. 2. In the course of your employment or engagement….
  22. 22. 22 Problem #6: Turning Good Things Bad More Sad Truths: If you have a well-written, properly signed contract, any of the following events (alone or in combination) can weaken or invalidate a specific provision or even the whole contract: • changes in status (from part-time to full-time, temporary to permanent, consultant to employee, volunteer to consultant) • changes in role/responsibilities (promotions, transfers, new/added responsibilities) • imposing significant adverse changes (pay cuts, demotions) • mistreating employees/workers or mishandling their departures.
  23. 23. 23 Problem #6: Turning Good Things Bad To reduce/control change-related risks, you have to use properly written amending/termination documents and you have to follow proper change management and termination processes. Start off right and stay on track. Early in any change-planning stage, check with your advisor. Then, don’t deviate from recommended documents or recommended process without conferring in advance with your advisor.
  24. 24. 24 The Bottom Line The Bottom Line: 1. What you don’t see can be as (or more) important than what you do see. Too many myths and misunderstandings are out there. Get good advice from knowledgeable experts…not your pals or the Internet. 2. Bad process at any stage will weaken or kill good contracts. 3. Doing it wrong at any stage costs money and time, reduces the value of your team/your investment, drives price way down and/or drives investors/buyers away. 4. Doing it right at every stage makes you look smart and competent, preserves your investment, increases your value and gives you better leverage. Start off right and stay on track.
  25. 25. Thank You Montréal | Ottawa | Kanata | Toronto | Hamilton | Waterloo Region | Calgary | Vancouver | Moscow | London Melanie Polowin (613) 786-0244