Employment Contracts: Put it in Writing
It is well recognized that employment contracts govern employee-employer relationships, under Canadian law. These agreements establish the parties' duties and obligations to each other in their employment relationship. Despite the benefits gained by establishing clear understanding of the parties' responsibilities at the outset—by way of a well-thought formal written agreement—many early-stage companies opt for a more passive approach, opting for verbal or implied contracts (i.e., handshake agreements).
The motive for electing a less formal approach may be haste, cost, lack of knowledge or awareness, or simply trust between parties. Regardless, the risk is too great to forgo this critical formality at the outset of the employment relationship. Both parties have everything to gain by establishing their relationship before commencing work. If terms cannot be agreed upon at this stage—when both parties are excited to tie to one another—then when? Delaying or failing to enter into a comprehensive and professionally written employment contract is likely to result in significant headaches, or worse, down the road.
These troubles tend to surface when conflict arises between the parties with respect to terms of their employment agreement (e.g. hours, wages, overtime, raises, scope of work, holidays, benefits, etc.) and at the point of contract termination (i.e., when the employment relationship ends). These can be contentious times. Absent a written agreement between the parties, these situations are likely to escalate into a word against word conflict in front of a judge. In addition to the significant monetary expense, litigation can consume an early stage company by devoting time, resources, and energy to a peripheral matter that could have been contained at the outset. Therefore entering into a written contract that clearly establishes the essential terms of the employment agreement between the parties is certain to go a long way to reduce possibility and impact of dispute or disagreement that later develop.
Ryan Logan is a caseworker at the BLG Business Venture Clinic and a 2018 JD Candidate at both the University of Calgary and the University of Houston.
Blog posts are by students at the Business Venture Clinic. Student bios appear under each post.