Many employers and businesses fail to put employment and contractor agreements in writing. They do this for a variety of reasons ranging from they don’t know how to draft the agreement to they don’t want to do it because they have a more informal workplace and they like it that way. Some businesses don’t want to incur the cost of getting a lawyer to draft their agreements for them. While all of these reasons are understandable, the reasons for putting agreements into writing are much more compelling.
Regardless of whether you have a written document or not, for every one of your employees and contractors you have a contract. When you don’t put the terms of the contract in writing, they are implied through operation of law. The terms that are implied include that the contract will not be terminated without reasonable notice. Also implied are various common law duties imposed on both employees and employers such as the duty of fidelity and good faith, the duty to provide work and to pay for that work and the duty to comply with statutory requirements. When you do not put the terms of your contract into writing, you may unwittingly be bound by implied terms that were not intended. You may also be setting yourself up for a significant legal battle in the event that the relationship goes sour over time.
Putting the terms of your agreement in writing provides both parties with certainty. It provides an opportunity for the parties to consider the true nature of the relationship. Is the worker really an independent contractor? Or are they actually an employee? Treating a worker who is really an employee like an independent contractor can result in significant liability for unpaid source deductions and failure to provide payments as required by employment standards legislation. Your written agreement can ensure that the factors that are determinative of whether an individual is an employee or a contractor are specifically addressed, increasing the likelihood that with scrutiny the relationship will be viewed the way you intended.
Putting the terms of your agreement in writing also provide the parties with an opportunity to consider how the relationship might come to an end and the obligations on each of them when they want to bring the relationship to an end. There is an implied obligation on an employee to provide reasonable notice when they quit their employment. The purpose of the provision of that notice is to ensure that there is a reasonable transition when an employee leaves the workplace. If they do not provide reasonable notice, it can cause the employer harm or damages. Addressing what the parties consider to be reasonable notice in the contract eliminates the uncertainty that the employer can face when employees leave. It provides the opportunity for the employer to ensure that the employee is providing the notice that is adequate to prevent harm to their business that can result from someone leaving without adequate notice.
There is also an implied obligation on an employer to provide reasonable notice of the termination of an employee when the termination is without cause. The statutory minimum required by employment standards legislation is imposed through regulation but over and above the statutory minimum the law implies a further period of reasonable notice. That implied reasonable notice can be eliminated through express contractual terms or it can be agreed in advance between the parties what reasonable notice will be. Doing so not only provides certainty to both parties of their exposure and rights following a without cause termination, it also prevents costly legal disputes over what constitutes reasonable notice.
The implied duty of fidelity and confidentiality can provide some protection from unfair competition or use of your confidential information. However, having an agreement that clearly details obligations with respect to competition and use of confidential information post- employment can provide a mechanism for employers to more fully protect themselves. More importantly, specifically stating requirements in an employment agreement can go a long way towards ensuring that departing employees are not departing with your information. Specifically stating the requirements in a written agreement draws those duties to the attention of your employees and provides you with an easy way to remind departing employees of their obligations.
Putting agreements in writing does not have to be costly. A well worded employment agreement can be utilized with revisions for all employees. Formalizing your agreements doesn’t formalize your workplace but it does provide certainty and clarity for both parties and ultimately contributes a better functioning workplace.