EMPLOYMENT CONTRACTS: WHAT IS IMPLIED AND WHAT IS NOT?

RICHARD J. GILBORN, Q.C., April 30, 2004

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Introduction Employers Obligations by Legislation The Employment Contract, What is Implied at Common Law Recent Developments in Alberta Conclusion

1. INTRODUCTION

Employers always in contractual relationships whether a written contract exists or not Major sources of implied terms are legislation and common law Judges use industry custom, public policy and presumed intention of parties Judges will modify a contract if it is unclear, unfair or does not comply with legislation

Key Elements of an Employment Contract

The key principles of contract law apply to the employment contract core employee agrees to perform labour in return for wage Every contract (including fundamental changes to the contract) must involve consideration Consideration something that has value is being exchanged Coercion or undue pressure may make an employment contract unenforceable The terms of a contract can be agreed upon orally

Benefits of Written Employment Contracts

Written contracts provide certainty concerning the rights and obligations of the parties Common point of reference in case of disagreement But Courts will enforce implied as well as express terms of an employment contract A Court will ensure the contract does not violate legislation Rarely can employers modify statutory obligations by written contract

2. EMPLOYERS OBLIGATIONS BY LEGISLATION

Primary Sources: Federal, Provincial and Municipal Legislation Employees of interprovincial undertakings governed by federal legislation Income Tax Act, Employment Insurance Act and Canada Pension Plan apply to all Alberta businesses Provincial legislation that applies to most if not all Alberta businesses Employment Standards Code, Occupational Health and Safety Act, Workers Compensation Act, Employment Pension Plans Act, Labour Relations Code, Human Rights, Citizenship and Multiculturalism Act Municipal Business Licensing Bylaws

Employment Standards Code of Alberta

Sets minimum standards for virtually all Alberta employers in respect of payment of earnings, employment record keeping, hours of work, overtime and overtime pay, holidays and holiday pay, maternity and parental leave, termination of employment, layoff and recall, restriction of employment of children and employment of persons with disabilities Generally the Code does not affect additional civil remedies available to employee or employer Directors of a corporation may be liable personally for up to six months unpaid wages Directors as well as the company may also be personally liable in respect of Code violations

3. THE EMPLOYMENT CONTRACT AT COMMON LAW

Generally, employers and employees are free to contract exception collective agreements Contractual terms which will be implied, if not expressed job description, policies and procedures, loyalty, confidentiality, non-competition, remuneration and basis for termination In absence of specific terms, common law will apply right to terminate for just cause or upon reasonable notice Parties the laws develop tests to classify employees versus independent contractors A person may be considered an employee of both a parent and subsidiary corporation if not clearly defined

The Term of the Contract

Indefinite hiring implied after three months in absence of specific terms Problem with renewal of fixed terms becomes indefinite term Termination of indefinite term requires just cause or reasonable notice Cause requires fundamental breach of the relationship of trust, not minor problems with performance In absence of specific notice Courts will imply reasonable notice based on number of factors

Hiring and Reference Checks

Employers are largely unrestricted in their selection of employees subject to prohibited discrimination Employers are at liberty to seek references New privacy legislation restricts an employers ability to give information about an employee without consent or notice Requirement to provide reference may be an implied term in contract

Termination
Section 56 of Employment Standards Code minimum notice 1 to 8 weeks Duty of good faith may soon be an implied term of employment contract which may affect an employers right to terminate without cause Bad behaviour will increase required notice Wallace case Employer must be candid, reasonable and honest, not untruthful, misleading or unduly insensitive at termination Reasonable pay for services provided will be implied quantum meruit Reduction in pay may be constructive dismissal

Probationary Employees and Policy and Procedures Manual

Legislation does not require minimum notice for probationary employee In absence of written terms, the first three months are probationary Common law may require reasonable notice particularly for luring from another job Policy and procedures manuals may be incorporated into an employment contract If policies affect fundamental nature of contract require acknowledgment at commencement of employment if afterwards requires new consideration

4. RECENT DEVELOPMENTS IN ALBERTA

Vrana v. Procor Ltd. held that a temporary layoff will not constitute wrongful dismissal There was no written employment contract Court held common law rule changed by Employment Standards Code Previous decisions have held the opposite Case under appeal

5. CONCLUSION

Written employment contracts provide certainty in respect of an employers obligations Written employment contracts provide common point of reference in case of disagreement Written employment contracts must be properly drafted so as not to clash with legislation The Courts will imply the terms of employment relationships, some of which may be a surprise to an employer