EMPLOYMENT CONTRACTS: WHAT IS IMPLIED AND WHAT IS NOT

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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