EMPLOYMENT CONTRACTS: WHAT IS IMPLIED AND WHAT IS NOT?

1. EMPLOYMENT CONTRACTS: WHAT IS IMPLIED AND WHAT IS NOT? RICHARD J. GILBORN, Q.C., April 30, 2004

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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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 employer’s ability to give information about an employee without consent or notice • Requirement to provide reference may be an implied term in contract

11. 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 employer’s 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

12. 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

13. 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

14. 5. CONCLUSION • Written employment contracts provide certainty in respect of an employer’s 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