Now that Q1 has closed, it’s the perfect time to tidy up business operations. While many businesses will take the opportunity to review their finances, refresh their policies, and even streamline their systems, there is one area that is often overlooked: employment agreements.
For many employers, employment agreements are treated as a set-it-and-forget-it duty. In reality, old employment agreements can put your business at risk. Laws are evolving, expectations are shifting, and agreements that once seemed solid might no longer reflect best practices or meet legal requirements.
In this blog, we’ll walk through when to know if your employment agreements are due for an update, highlight common contract clauses that put your business at risk, explain how to align your agreements with current employment standards requirements, and help determine when a simple update or a new employment agreement is the better approach, including the requirement for employee consideration in contract changes.
Once the role has been filled and the employment agreement has been signed, they are often set aside and rarely revisited. If you haven’t reviewed your employment agreement template in the past couple of years, there’s a strong chance it could benefit from a little refresh.
Here are some common signs that your employment contract needs some help:
If any of these statements sound familiar, it’s a sign that your employment agreements need to be revisited.
Some clauses are especially prone to creating legal issues if they are unclear, outdated, or drafted improperly. Common clauses to watch include the following:
Termination Clauses
Weak termination clauses, poorly drafted language, defining “cause” too broadly, or provisions that provide less pay or notice than required by law.
The risk: If the clauses are invalid or unclear, courts may disregard them entirely and award employees greater notice or larger payouts than intended under the contract by following common law.
Restrictive Covenants
Overly broad non-compete, non-disclosure, or non-solicitation clauses that are not tailored to the employee’s role, the employee’s scope of work, duration, or geography. And in some provinces, legislation has changed in recent years making some of these clauses illegal, except for very senior roles. For example, in Ontario, non-competes cannot be included in contracts unless the contract is for an executive (e.g. C-Level) or for someone who recently sold their business who is now working for the company.
The risk: Restrictive covenants are already difficult to enforce. When they’re drafted too broadly or not clearly tied to the employee’s role, scope, duration, or geography, they are likely to be struck down as unreasonable.
Misclassification Clauses
Incorrectly labelling employees as independent contractors even though factors such as the level of control over their work, requirements for their hours, and integration into the business may indicate the individual is actually an employee.
The risk: Misclassification can result in retroactive payroll taxes, statutory entitlements, and penalties from the CRA and potential employment standards claims.
Overtime Clauses
Language that suggests employees are not eligible for overtime, are expected to work additional hours without pay, or are broadly categorized as not eligible for overtime without clear justification.
The risk: Minimum employment standards set clear requirements for overtime eligibility and pay. If a contract doesn’t align with those standards, the clause may not be enforceable. This can result in liability for unpaid overtime, along with back pay, penalties, and disputes.
Bonus Clauses
“Discretionary” bonus language that doesn’t reflect how compensation is actually earned or paid, along with unclear language around who qualifies, when bonuses are paid, and what happens if someone leaves before payout.
The risk: If it’s treated like earned pay, it may still be owed. Unclear or inconsistent terms can lead to back pay, disputes, and potential penalties.
Probationary Period Clauses
Unclear or poorly drafted probationary clauses, including gaps around duration, performance expectations, employee rights, and termination terms. It’s also important to note that even well-written clauses will not be enforceable if they do not comply with applicable employment standards legislation.
The risk: Employers may lose the ability to rely on the probationary period to terminate employment without notice. This can expose the organization to wrongful dismissal claims and associated costs.
Poorly drafted clauses can also undermine other parts of the agreement, including termination provisions. Separately, if the restrictive covenants themselves are unenforceable, the organization may be left with little to no protection against competition.
Staying up to date with current employment legislation is essential for any employer. While rules evolve over time, there are best practices to follow that ensure your employment agreements remain compliant and aligned with your workplace policies. Avoid unnecessary non-compliance costs with these best practices.
Meeting or Exceeding Minimum Standards
Ensure employment agreements provide at least the statutory entitlements required under employment standards, overtime, including notice of termination, public holidays, vacation time and pay, and statutory leaves .
Updating Contracts With Legislative Changes
When laws are amended, it’s time to revise your employment agreements so they reflect the new requirements, maintain compliance, and avoid legal exposure. In addition to changes that can directly impact contract terms, there are also broader employment standards updates that impact your hiring and documentation practices. To stay current on changes to employment standards, send us a message or regularly review official sources such as:
Regularly Reviewing Policy
Periodic audits will help ensure alignment between employment agreements, workplace policies, and day-to-day workplace practices with evolving employee standards.
Maintaining Accurate Employment Records
Keep proper documentation of employment agreements, amendments, and communication to support compliance and reduce legal risk in the event of a dispute.
By following these best practices, businesses can minimize legal risk while ensuring their employees clearly understand their rights and responsibilities.
Not every change requires a new employment agreement. In some cases, a simple communication or memo is sufficient. In others, a formal update or a full rewrite of the contract is necessary.
The right approach depends on the nature of the change, how current the employment agreement is, and whether the existing terms remain compliant and aligned with your practices. As a general rule, employment agreements should be reviewed regularly, ideally once a year.
A memo or internal communication may be enough when changes are minor and do not impact core terms of employment agreement.
This typically includes:
In these cases, updating internal documentation or communicating the change clearly to employees is often sufficient.
A formal employment agreement update or new employment agreement e is needed when changes impact key terms or when the employment agreement itself presents risk.
A targeted update may be appropriate if:
A new employment agreement is likely required if:
If in doubt, it is generally simplest to provide the employee with a new employment agreement.
If you are introducing a new employment agreement or making material changes to an existing one, you must provide consideration in exchange for the employee agreeing to the new employment agreement
This means employees must receive something of value, such as:
Without proper consideration, the updated agreement may not be enforceable, even if it is signed.
Employment agreements are a critical legal foundation for your business. Keeping them current and up to date isn’t just about staying compliant with evolving regulations, it’s also about reducing risk while providing clarity across the business.
Spring cleaning your employment agreements doesn’t have to be daunting. With a simple, structured review, you can update outdated information, identify risky compliance gaps, and future-proof your employment agreements to support your business as it grows.
Ready to give your employment contracts a refresh? Partner with us
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