Ensuring employment agreements are enforceable

QUESTION: Last week you answered a question for a reader who was fired and said that most employment contracts that try to set out what an employer has to pay an employee when the employee is terminated are unenforceable. As a small business owner, this is really frustrating as we often can’t afford to pay significant severance packages to relatively short-term employees. Is there anything we can do, or are we stuck with having to pay amounts we often can’t afford?

Yes, you can limit an employee’s entitlement through a proper employment agreement. As the law develops, the requirements for what is “proper” – and therefore enforceable – changes. The last significant case impacting termination provisions happened in 2020 and most contracts that were in existence at that time became unenforceable. In some cases, this means that you might have to pay an employee five or six times what you anticipated you would in the event you need to end their employment.

The good news is that updating employment agreements and taking steps to ensure they are enforceable is generally not difficult. When the law changed in 2020, I sent my employer clients a summary of the case and recommendations on the steps to take to ensure their employment agreements were revised and therefore enforceable. Most of my employer clients had fixed their agreements within a month or two.

Termination provisions that set out fair entitlements are important for both employers and employees.  Without them, it leads to uncertainty and both sides often spend money on lawyers unnecessarily.

This article was originally published in The Hamilton Spectator