A well-crafted employment agreement is, quite possibly, the single most effective tool that an organization can wield to save money. Unfortunately, it’s woefully underutilized. An effective agreement is an investment that pays for itself countless times over, has the potential to save thousands in legal fees, clarifies expectations for both parties—while they are still enthusiastic—and can help protect an organization’s most valuable and sensitive information. And yet, only a handful of organizations take the time to invest in a solid employment agreement when hiring new employees. Even when companies do have employment agreements in place, they often fall victim to the following top 5 myths:
Myth #1: Probationary periods can only be three months long.
False. We routinely advise clients to establish six-month probationary periods because it’s much harder for an employee to be on their “best” behaviour for that long. A six-month period also allows for both parties to conduct a meaningful assessment of the suitability of the employment relationship.
Myth #2: Employment agreements should not contemplate the end of the relationship.
False. Like entering into a pre-nuptial agreement before a wedding, the beginning of the employment relationship is often the best time to contemplate the end because both parties are still on the same page and optimistic about the future. The end of the relationship is the worst time to start negotiating how much money an individual should receive upon termination, because the working relationship may have deteriorated and tensions may be running high.
Myth #3: Employees should sign an employment agreement during the offer meeting.
False. In order to ensure the maximum enforceability of an employment agreement, organizations should present a prospective employee with the agreement and encourage them to take it away for review, consider it with their advisors and seek independent legal advice, if they wish. Employees should not be encouraged to sign an employment agreement at their offer meeting.
Myth #4: Employees can enter into an employment agreement at any time.
False. Employers cannot insist that an existing employee sign an employment agreement. An employer may, without properly implementing a new agreement, inadvertently constructively dismiss that employee if they do. Even worse, if an employee is not offered anything in exchange for their agreement, the entire employment agreement could be rendered unenforceable. It is possible to properly enter into an employment agreement with an existing employee, but it requires great care to ensure that contractual requirements are met, and should generally be done after first obtaining legal advice.
Myth #5: You don’t need employment agreements for short-service employees.
False. In recent decisions, the courts have awarded fairly significant common law reasonable notice entitlement for short-service employees. Part of the rationale for the notice awards being higher than anticipated by employers is the recognition that the hiring cycle to obtain similar employment has increased. The best way for employers to protect against unanticipated notice liability related to terminations of short service employees is through the preparation and execution of employment agreements which contemplate the amount of notice that the employee will receive upon termination.
This blog is provided as information and a summary of workplace legal issues.
This information is not intended as legal advice.