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The essentials of an employment contract.

Every employment relationship is governed by an employment contract. Many employees believe that because a written employment contract was never signed, no employment contract exists. On the contrary, employment contracts can take the form of a verbal understanding or a lengthy written document between the employer and the employee. In either case, every employment contract covers or should cover certain basic and essential elements.

Every employment contract should deal with the issue of compensation. Compensation can take many forms, such as salary and wages, bonuses, benefits, vacation entitlement, profit-sharing, and vehicle allowances. It is important that when individuals commence employment they fully understand what compensation they will be entitled to and the basis for such entitlement. As there sometimes can be confusion in regard to entitlement to compensation, a written employment contract setting out exactly what compensation will be provided is preferable. However, at a minimum, employees should ensure that they get as much information as possible in regard to their compensation entitlement, including any relevant employee handbooks or brochures that deal with compensation. It is important, for example, that employees understand when they will be entitled to receive bonuses or participate in profit-sharing, particularly in case their employment is terminated.

Another essential element of any employment contract is in relation to termination of the employment relationship. While most employees do not think about termination when they first start a new job, the rights and obligations with respect to the termination of the employment relationship end up being extremely important.

As a general rule, the employer has the right to terminate the employment

of any non-unionized employee provided the employer either

* has just cause, or

* provides reasonable notice or wages in lieu of reasonable notice to the employee.

The courts have said that the principle reason an employer must give reasonable notice is to enable an employee to find new employment.

The general factors that the courts will consider in assessing the reasonable period of termination notice are the type of employment, the age of the employee, the length of service, and the availability of other work. There are also a number of special circumstances which can result in significantly longer notice periods:

* The fact that an employer induced an employee to leave a secure, well paid position to join that employer (and the previous position is no longer available) will increase the notice period.

* The fact that an employee relocated to a new community to accept a job and gave up employment or contacts in his former community will sometimes increase the notice period to which he is entitled.

* The promise of secure career employment made at the time of hiring will increase the notice period as will promises of substantial remuneration.

* If the employer terminates the employee in a manner which makes it more difficult for that employee to obtain alternative employment, then the notice period may be increased.

The above principles will apply if the employer and employee have failed to address the issue of termination upon hiring because the courts have said that it is an implied term of every employment contract that the employee be provided with reasonable notice of termination unless the employer has just cause to terminate the employment. However, the parties can expressly agree at the time of hiring about what will be the notice period or severance payment in lieu of notice. As long as the notice period meets the minimum requirements under the Alberta Employment Standards Code (or similar codes or statutes in other provinces), then the agreement between the parties will be enforced and the courts will not apply the above principles. Often times, employers seek to reach agreement in advance about the notice period because it creates certainty regarding the obligations on termination as opposed to trying to determine what the reasonable period of notice should be in the event of termination.

It is also important when starting employment that new employees become familiar with employer policies and procedures, because often the employer will try to take the position that such policies and procedures form part of the contract. While the extent to which such policies and procedures become part of the contract depend upon the particular circumstances of each case, employees would be well served by becoming knowledgeable in regard to those policies and procedures. If there are any issues in regard to such policies and procedures, employees would be wise to raise them with their employer as soon as possible, particularly if they have a different understanding of how the relationship is to be governed.

Employees also need to understand that whether the employment contract is verbal or in writing, no term or condition of employment can provide for less than the minimum standards set out in the Alberta Employment Standards Code (or similar codes or statutes in other provinces). For example, the Employment Standards Code provides that when an employee has been employed for more than three months but less than two years, that employee is entitled to either one week notice, or severance in lieu of notice, upon termination of his or her employment. Where the employment contract suggests that the employee is entitled to something less than one week, then that part of the contract which deals with termination would not be enforced and the implied term of reasonable notice would apply. Thus, it is important that employees be familiar with the rights that they have under the Employment Standards Code which include overtime, vacation, and statutory holidays. Employees can do so by either contacting the Alberta Employment Standards Branch or checking its website at

Employees should also be aware that whether or not the employment contract is verbal or in writing, employees have a duty of confidentiality which requires they not disclose trade secrets and confidential information. In addition, they are prohibited from using such information after termination of employment. All employees also owe their employers a general duty of good faith and fidelity. This means, for example, that employees are not entitled to compete against their employer during the employment relationship.

After leaving employment, former employees may seek employment elsewhere, take to the new position those skills and general knowledge acquired in the course of their former employment, and solicit those customers who they can remember. The only exceptions would be where the employee is found to be in a fiduciary relationship, for example, where the employee is in a senior management position or where the employee has agreed to a restrictive covenant as part of the terms and conditions of employment.

Employers similarly have an implied obligation of good faith and fair dealing toward their employees that is of particular relevance when the employment relationship is terminated. Specifically, the manner of dismissal is now very relevant in determining the length of notice or amount of severance for which the employer is liable. Examples of where an employer is found to have breached its implied obligation of good faith and fair dealing are

* an employer has failed to provide a letter of reference,

* an employer has refused to provide the minimum notice provided under the Employment Standards Code, or

* an employer has made completely unsubstantiated allegations of just cause.

In such cases, the courts will likely increase the period of reasonable notice for termination.

An employment contract is probably one of the most important legal relationships that an individual will enter into. Accordingly, it is important that employees have a clear understanding as to what the terms of that relationship are so that their interests are best protected.

Anna Maria Moscardelli is a lawyer with the firm of Neuman Thompson in Edmonton, Alberta.
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Title Annotation:Feature on Contracts
Author:Moscardelli, Anna Maria
Geographic Code:1CANA
Date:Dec 1, 2004
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