BLG’s Charities and Not-for-Profit Group held its 14th Annual Sector Update for Charities and Not-for-Profit Organizations on November 13, 2013 in its Toronto office. The following is a synopsis of a presentation given by me at this update:
Drafting enforceable employment contracts with enforceable termination clauses is not as straightforward as one might think – there are a lot of traps to consider! As with any contract, it is important to ensure there is a clear offer and acceptance of the contract, consideration (value flowing both ways, e.g., the employee provides services and in exchange receives compensation), and the contract must be signed freely and voluntarily and without any pressure being placed on the employee. In addition, employment contracts must be signed before (not on, or after) the first day of work, and should specifically reference or attach (as an appendix) all key terms and conditions such as bonus entitlements, termination clauses, any non-solicit or non-compete obligations, and important policies.
Remember that termination clauses must be very carefully drafted if the intention is to displace the presumption that employees will receive “common law reasonable notice” upon termination. Termination clauses must provide for at least the minimum entitlements under applicable provincial employment standards legislation (which, in Ontario, includes notice of termination or pay in lieu thereof, benefits continuation during the termination period, and – where the employee has served more than 5 years and the employer has a payroll of at least $2.5 million annually – severance pay). Termination clauses and formulas that actually or potentially generate less than the employment standards legislation minimums will not be enforced. Recent case law has made it clear that termination clauses must specifically reference the continuation of benefits. Recent case law also confirms that unless a termination clause specifically provides for a cut-off in the event of mitigation (i.e., if the employee finds new work), the entire package will be payable to the employee.
We recommend that you review your precedent employment contracts and termination clauses on a regular basis to ensure they comply with developing case law and applicable statutes. We are happy to help!