Beware Use of American Employment Contracts

By Pushor Mitchell LLP
Categories: Blog, Employment Law

I occasionally come across employment contracts, relating to Canadian employees, which originate with an American employer. One clear sign that this is the case is any sort of reference to “at will” employment.

The concept of “at will” employment is inapplicable in the Canadian legal context. Employment which is “at will” means that the employer can terminate the employment at any time and without any working notice (or pay in lieu) obligations.

This concept is deeply engrained in American employment law and it now applies in most of the U.S. states. This, of course, is a significantly different approach to termination of employment than exists here.

In Canada, the concept of reasonable working notice of termination (or pay in lieu thereof) is at the heart of employment law. This is the most significant implied term of employment. It is enforced by way of the common law of employment virtually everywhere in Canada. It is also enshrined in employment standards legislation across the country.

Contracts which purport to allow the employer to dismiss the employee with no working notice (or pay in lieu) are unenforceable in Canada. This includes American contracts (which may, nonetheless, be perfectly valid in the U.S.).

Another indicator that the contract was developed in the U.S. is a statement that the agreement is not intended to form a contract. This statement is included in American hiring documents as a way of avoiding certain liabilities which can arise as a result of a contractual relationship in the United States.

That concept, of course, is also inapplicable because in Canada every employee has an employment contract. Although the great majority of Canadian employees are not the subject of written contracts, Canadas common law effectively imposes an unwritten contract upon the parties. This contract includes a number of implied terms, in addition to the obligation to provide reasonable working notice, such as the employer’s duty to deal with the employee in a good faith manner.

I expect that American contracts typically find their way into Canada through companies which are based in the United States but have operations in Canada. American human resources staff or lawyers may assume that the contracts are valid here and so their existing contracts end up being used in relation to Canadian employees.

The downfall for employers using these contractual clauses in relation to Canadian employees is that they won’t have any effect here. The employer will still be subject to Canadian statutes and common law notwithstanding the existence of the contracts.

So, if the employer is operating under the mistaken assumption that it will have no termination liabilities, it is in for a surprise. The extent of those liabilities (which are often only learned about after the employee has been dismissed) can be jarring, indeed, for an employer accustomed to dismissing employees “at will”.

Neither the employee nor the employer benefits from having a legally inappropriate employment contract in place. The uncertainty caused by the use of inapplicable clauses is likely to lead to expensive litigation. The whole point of employment contracts, of course, is to avoid such litigation by having enforceable terms in place from the outset.

Employees who are presented with an employment contract containing these types of clauses should raise the issue with their employer immediately. And, employers utilizing contracts containing these clauses should cease that practice and obtain expert advice about developing contracts which are enforceable under Canadian employment law.