Are Employment Contracts Negotiable?

Are the terms of employment contracts negotiable?  More often than not, the answer is yes.  But it amazes me how many people tell me that they assumed that the proposed employment contract was simply a “standard form” agreement and just signed it – even when accepting fairly high level positions.

In other posts, I have looked at the types of clauses that can be used in employment contracts and what they really mean.  You can find the most recent discussion here.

But I wanted to consider some more practical points.  Some might seem obvious.  But people holding a new job offer in hand don’t always think of everything that should be considered.  While you may be anxious to sign the employment contract and start the new job, especially if you have been out of work for some period of time, you really do need to look at the contact closely.  Not all of the terms are written in stone.

What items can be negotiated?

1. Salary.  Well, of course this is not really a legal point.  But most people realize that salary is negotiable.  So I often have employees tell me that they negotiated up the salary level of a new position – but ignored everything else in the contract.  Don’t assume that the salary is fixed.  There may well be room to improve it.  Most of the time, it can’t hurt to try.

2. Vacation and Bonus.  In a sense, these benefits go hand in hand with salary.  They are tangible items that an employer might agree to increase.  Often, both items are subject to a grid or a plan.  But I regularly see employers making agreements to increase vacation time at the request of a new hire – especially from two to three weeks or from three to four.

3. Severance.  This is crucial.  Even though it might seem like the last thing on the mind of someone who is about to be hired, it can be incredibly significant.  Some employers will use clauses that drastically limit the amount of potential severance to be paid on a dismissal.  Any clauses that say “employment standards legislation” or something similar should be questioned and considered.  They might even be deal breaking clauses.  As a result, employers will often negotiate these clauses.  If they will not, you should get proper legal advice so that you understand the implications of signing away such important and monetarily valuable rights.

4. Non-Competition Agreements: People generally realize that these clauses are significant, even if they have not had legal advice.  But I often hear employees telling me that a friend or family member told them not to worry because these clauses are rarely enforced and may not even be enforceable.  While that advice might be true sometimes, it is not always the case.  Signing a non-competition agreement – or even a “non-solicitation” agreement can greatly impact your future opportunities after leaving this new employer.  These clauses are also often negotiable, particularly the proposed time period of the restrictions.

5. Probation and Benefits Clauses.  Believe it or not, these too are negotiable items.  If an employee is being recruited from another position, the potential employer may agree to waive a probationary period and/or start benefits right away.  Sometimes a signing bonus can even be negotiated.

These are just a few of the points to consider.  Competent legal counsel can often point out a number of different clauses in a proposed employment contract that are problematic or that should be considered very carefully.  It may well be much cheaper, in the long run, to go through an employment contract review process at the outset than a legal battle at the end of a relationship.  It is usually far worse to find out, after being dismissed, that a signed employment agreement has now left you with below-market severance, enforceable post-employment restriction and no real legal alternatives.

If the employer is reasonable and is genuinely interested in treating its employees fairly, it should be prepared to negotiate reasonable provisions in all of these areas and maybe some others as well.

 

 

Signing an Employment Contract in Canada? Points to Consider.

Congratulations!  YoConract Signingu have made it through the interview process and have now  been given an employment contract.  The contract may contain terms that significantly alter your legal rights.  Don’t assume that the document is a “standard form” or that it is non-negotiable.  You should consider the terms carefully.  You may consider getting legal advice to have it reviewed properly.  Here are some things to consider before signing:

1.  Termination Clause:  In Canada, this is the number one item to watch for.  If  there is no termination clause, you will generally be entitled to common law “reasonable notice” on dismissal.  This can be in the range of one month per year of service and can often be much more than that.  Under Canadian law, employers can use termination clauses to limit the amount of compensation you might get in the event of a dismissal.  Employers can provide that they are paying as little as the minimum amounts under the applicable employment standards legislation.  With proper wording, they can exclude common law amounts.  If you sign a clause like this, it may be enforceable.  This could end up costing you thousands of dollars.  These clauses are often negotiable.  If the employer will not negotiate, this type of clause could be a deal-breaker for some people, especially those with other options.  Ideally, a Canadian employment contract should simply state that in the event of dismissal, you will be provided with notice and/or compensation in accordance with common law.  Beware of any reference to the Employment Standards Act in a termination clause.

2.  Post Employment Restrictions:  This is the second most important reason employers use written employment contracts in Canada.  If there are no post-employment restrictions, you are generally free to work wherever you like, with whomever you like after you leave a workplace.  Employers often include non-solicitation clauses (of clients or employees), non-competition clauses and confidentiality clauses in their agreements.  Some of these clauses may be enforceable.  They may also make it very difficult for you to find alternate employment later on, even if the enforceability of the clause is uncertain.  These clauses are often negotiable.  Be very wary of extensive non-solicitation, non-competition or other similar clauses.

3.  Probation:  Contrary to what most people believe, there is no “standard” or automatic probation term.  Although probation is referenced in the Ontario Employment Standards Act, for example, this type of clause is not automatic.  If you are leaving other employment to accept a position – and even if you are not, you may be able to get the employer to delete the probation clause.    You may also be able to get the employer to start your health and medical benefits immediately without a probationary period.

4. Compensation:  It goes without saying that the various components of your income should be set out clearly- including salary, bonus, car allowance, pension or RRSP contributions, stock options or share grants and any other amounts that have been discussed.  Employees can often negotiate a signing bonus, particularly if you found the position directly or if you are leaving other employment to accept this role.  If the terms of a plan (for example, a bonus plan or a commission plan) are vague or not provided, you should consider requesting further information or even some guarantees for the first year or two.  Vacation and sick days should also be specified.  Vacation time is often negotiable.

5.  Role and Responsibilities:  The position should be described in sufficient detail, ideally with a job description attached as an appendix, if appropriate. Watch for language in the employment contract that would permit the employer to change your position, job location, hours of work or other key employment terms with minimal or no notice.  These clauses may be enforceable and could alter your legal rights.

6.  Lay-Off:  Some employers include a clause that states that the employer can put its employees on a “lay-off” in the even of a work slowdown, without advance notice or compensation.  These clauses may be legally enforceable and may alter your common law rights.

7.   Entire Agreement Clause:  Many employment contracts in Canada contain an “entire agreement” clause.  This clause means that any promises that may have been made to you must be included in the employment contract or they will become worthless.  If the employer has said anything about future salary increases, bonus amounts, promotions, benefits, or other terms, make sure that these promises are included in the written employment contract.  Otherwise, these promises will become worthless.

8.  Jurisdiction:  Generally this is not an issue.  If you are working in Ontario, for example, you should expect that the employment contract will reference Ontario law and will confirm that Ontario courts have jurisdiction over any issues.  However, some employers do try to transfer the jurisdiction, especially if they think they will more likely to get an injunction in a non-competition case in another location (i.e. somewhere in the U.S….).  While these clauses may not necessarily stand up in court, they can create complications.  Employers may sometimes include mandatory arbitration clauses, which have the effect of ousting the jurisdiction of the courts.  These clauses should also be considered carefully.

Conclusion

In Canada, employment law is reasonably favourable to employees.  Many employment terms are “implied,” which means that they are deemed to be part of your employment contract even if they are not in writing.  Most employees would be best off with a simple offer letter confirming the start date, the job responsibilities and the salary and compensation arrangements.

Of course, the flip side is true for employers, who are generally much better off with a more detailed employment contract.  If you are provided with an extensive employment contract containing numerous terms that limit or affect your common law rights, this may be an ominous sign of things to come.  See how flexible the employer is about negotiating these terms.  Speak to current or past employees about how the workplace is actually run and managed.  In some cases, the position may seem like such a great opportunity that you are prepared to overlook all of the problematic terms of the employment contract.  Ultimately, that is a business decision that you have to make based on your personal circumstances.  But you should make that decision only once you are fully informed about the impact of these different contract clauses.

 

Restrictive Covenant Void – Ontario Court of Appeal

The Ontario Court of Appeal has confirmed once again that restrictive covenants are subject to careful judicial scrutiny, and will often be struck out.  According to the Court’s decision in Martin v. Concrete USL Limited Partnership,   post-employment restrictions that are overly broad or otherwise unreasonable will be struck down and considered void, even where the dismissed employee was a shareholder.

The dismissed employee, Derek Martin,  was a twenty year employee with a minority share in his employer’s business. When the assets of  the business, Concreate USL were sold, Martin received significant compensation.  However, he was required to sign a far-reaching non-competition and non-solicitation agreement.  After later being dismissed, Martin asked the Ontario Superior Court to rule that the restrictive covenants were unreasonable and therefore unenforceable.  The Ontario Superior Court held that the restrictions were reasonable and enforceable in the circumstances.

On appeal, one of the key issues was whether the duration of the agreements was uncertain.  Martin would be bound to certain restrictive covenants as long has he continued to hold shares in the company.  He could not dispose of these shares without the consent of third parties, including lenders and bonding companies with whom he had no connection.  It was therefore, arguably, unclear how long these agreements might remain in place.

A second issue on appeal related to the overly broad scope of the prohibited activities.  If the restrictions were enforceable, Martin would be prohibited from dealing with numerous potential customers, dealers and agents with whom he had not even had contact while working for Concreate.

Martin was successful with both of these arguments.  The Court of Appeal held that the scope of the restrictions went “far beyond what was properly required to adequately protect the goodwill of the purchased business…”  The unanimous decision of the Court references and relies on its prior decision from 2011 in Mason v. Chem-Trend Limited Partnership, in which it had held that it would not enforce an overly broad non-solicitation restriction.

The Court of Appeal noted that Martin had received independent legal advice about the restrictive covenant and he had signed a clause indicating that he agreed it was reasonable.  However, the Court held that it must still scrutinize these types of agreements to determine whether they are in the public interest, even where the situation involves more of a business transaction than an employment contract.

In light of these decisions, employers seeking to impose and enforce restrictive covenants must be extremely careful.  They must ensure that they are only restricting the employee from activities that would affect proprietary interests that they are entitled to protect and nothing more.  As the Ontario Court of Appeal has indicated, employers who overreach will be left with little or no protection from post-employment activities, other than their continued ability to enforce restrictions on the use of their confidential information.

 

To Sign or Not To Sign by Kevin Marron – The Globe and Mail July 21, 2004

Globeandmail.com

To sign or not to sign?
Many employers require employees to sign restrictive agreements. But both often ignore the legal ramifications — and that’s a big mistake, experts tell KEVIN MARRON
By KEVIN MARRON
Special to The Globe and Mail
UPDATED AT 5:10 PM EDT Wednesday, Jul 21, 2004

  Advertisement

When Lynda Vanderwal started work as a Web designer for a Vancouver high-tech firm two years ago, she had no idea she would end up getting snared in a web of legal entanglements because of the terms of the employment contract she signed.

The agreement stipulated that, if she quit or was fired, she could not work as a Web designer in direct competition with her employer within a 300-mile radius for two years.

Then, last September, 18 months after she joined the firm, her boss asked her and other employees to sign a new agreement — even more restrictive than the first. The new agreement specified that she would not work in competition with the company anywhere in North America for two years, she says.

“That was forbidding me from making a living,” Ms. Vanderwal says. “I said to my boss, ‘I don’t mind signing a thing saying I promise not to steal your clients or your information and use it elsewhere. But this is getting ridiculous.’ ”

So ridiculous in her mind that she refused to sign the new agreement. She says her boss led her to believe that, without signing, she would lose her job – and that would mean she’d be prevented under the earlier agreement she did sign from working in competition anywhere within 300 miles of her Surrey, B.C., home.

Ms. Vanderwal says, after seeking legal advice, she was able to negotiate a termination agreement that included a severance package and reduced to nine the number of competitors she was not allowed to work for. Now she is slowly finding employment on a freelance basis — including work her employer passed her way as part of the termination agreement.

Ms. Vanderwal’s experience provides sober warning about a situation faced by many people as they consider a new job: to sign or not to sign a non-compete agreement?

Many employers today, particularly in highly competitive fields such as technology, finance and telecommunications, require the signing of agreements restricting for who and where employees can work after they leave their jobs. Many eager job seekers sign on the dotted line without worrying about the implications of the small print in the contract.

This is a big mistake, according to Toronto employment lawyer Ken Krupat, who maintains that employers and employees alike often ignore the legal ramifications of restrictive agreements.

In fact, recent court decisions have put strict limits on non-competition clauses, he says — something that both employers and employees may not be aware of.

Elisa Scali, an Ottawa-based associate for Gowling Lafleur Henderson LLP, notes that a non-competition clause is, by definition, a restraint on trade.

“And so, they are prima facie unenforceable, unless the employer doesn’t go any further than absolutely necessary to protect its legitimate business interests.”

In fact, there are several kinds of agreements. Non-solicitation clauses protect an employer’s client base, while confidentiality clauses protect trade secrets and other business information. More sweeping non-competition agreements prevent former employees from working or conducting business in their industry, she adds.

And, she says, courts are more likely to enforce a non-solicitation clause or a confidentiality clause than non-competition agreements.

In some cases, employers have mandated a non-competition agreement but the court decided that a non-solicitation agreement would have sufficed. Courts have also deemed that agreements must be reasonable in terms of the geographic area covered and length of time they’re in effect.

In fact, the current trend in employment contracts is to move away from the kind of blanket non-competition clause that Ms. Vanderwal was asked to sign and toward more limited non-solicitation clauses, according to lawyer Stephen Shamie, who teaches executive education courses in human resource legal issues at Queen’s University’s School of Business.

Nevertheless, restrictive agreements are still heavily used, particularly where companies are anxious to protect their intellectual property and prevent rivals from raiding customers and staff, says Mr. Shamie, managing partner with Hicks Morley Hamilton Stewart Storie LLP in Toronto.

To get around the limitations courts are placing on restrictive agreements, companies are getting more sophisticated and creative, particularly with senior-level employees, in designing contracts that include bonuses and other incentives in exchange for non-competition provisions, Mr. Shamie says.

But there are also employers who are either unaware of the current legal trends or choose to ignore them, Mr. Krupat says.

“Some will take their chances and include an agreement that is overreaching, hoping to later use it as a lever against the departing employee at the tail end of employment, knowing that it may not be enforceable if it comes down to getting a decision from a court.”

And employers often get away with this, he says, because they can cause ex-employees or their new employers trouble and expense just by launching a law suit or seeking an injunction — even if they have no hope of winning.

Mr. Krupat advises employees to review contracts carefully before signing, seek legal advice and negotiate, if possible, with the company.

For instance, he suggests telling a prospective employer, “This is not enforceable at law and I’m not going to sign this, but I will sign something more reasonable and likely to be enforced.”

While negotiation is often a viable option for senior-level employees, more junior job seekers may not have enough clout, he says.

“For mid- and low-level employees, you should have an agreement reviewed and then have to make a choice. You may have to decide whether to take your chances and worry about it at the back end or go elsewhere, if you have an opportunity,” he says.

Brad Barclay, a former IBM Canada Ltd. employee now working as an independent software developer, says he regrets not getting legal advice before signing a standard IBM employment contract governing intellectual property rights.

Before joining IBM Canada in 1999, he had invented a piece of software for synchronizing data between handheld computers and corporate systems. While working, he continued to develop the product in his spare time, but the terms of his contract stipulated IBM owned the rights to any improvements he made during this period.

When he left IBM, he wanted to continue to develop his product. To do that, he had to abandon all improvements he’d made during the two years he was at IBM, he says.

It is common practice at IBM for all newly hired employees to sign a confidential information, copyright and invention agreement, according to IBM Canada spokesperson Jennifer Ballantyne.

She says this type of agreement is standard in the industry and is intended to protect the interests of IBM, the employee and others, such as the employee’s previous employer. Under the document, the employee agrees not only to safeguard IBM’s confidential information and material but also not to disclose to IBM any other company’s confidential information that may have been learned on a previous job.

The agreement also stipulates that any works created by the employee while employed by IBM belongs to the company, but there is also the opportunity for the employee to identify any work completed prior to his or her work at IBM, which may be exempt from this agreement, she adds.

All IBM employees must also agree to a code of conduct that covers conflicts of interest, responsibility for protecting IBM assets and personal conduct with other people, Ms. Ballantyne says.

People hired into more senior and sales positions in the company also sign non-solicitation agreements and/or non-competition agreements, she says. “These employees are entrusted with confidential information, are placed in key business and customer relationships and are privy to highly confidential IBM business strategies. Non-solicitation and non-competition agreements are an industry standard practice and are designed to protect IBM’s intellectual property, fiduciary relationships and the employee base,” Ms. Ballantyne says.

“The bottom line is we work in a very competitive industry and we’ve got to protect our assets and our people,” she says.

Mr. Barclay says he is not sure that he would have done anything differently, if he had sought legal advice at the time of signing his contract, since he was a recent graduate and probably didn’t have enough clout to negotiate another agreement.

Still, he says, he would have liked the opportunity to “learn more about my options and rights under law.”

On the other hand, he says, “What I did do correctly was to identify to IBM when I started my employment the technologies I had developed prior to working with them, and to ensure that I had sufficient information and documentation to prove this.”

Ms. Scali points out that there is a strange legal wrinkle whereby restrictive agreements are more likely to be enforced if the employee who signs them has had legal advice, since it is then reasonable to suppose that they knew what they were getting into.

So, should you just go ahead and sign the agreement anyway, assuming that it will not be enforceable? “I don’t think a lawyer would advise that, ” says Mr. Shamie, “But certainly that may be a view that is out there.”

What is more common, he says, is for job seekers to ignore or discount the risks involved in signing an overly restrictive employment agreement. “They really want the job and the tendency is to say, ‘Oh, well, I’m not thinking about what will happen to me after I’m terminated, so it’s not important. But, of course, it does become important,” he warns.

Ms. Vanderwal says she wishes someone had warned her about the risks of restrictive agreements. “I took a Web designer course at a community college. They did not mention anything about non-compete contracts. I didn’t even have a clue that they existed when I applied for this job,” she says.

Nevertheless, Ms. Vanderwal says she has no regrets about refusing to sign a restrictive agreement that she thought was unfair.

“I know that people say, ‘You may as well sign it because it’s not enforceable. It’s just words on paper.’ But, to me, it’s a matter of principle. Let’s be fair on this and make it reasonable.”

How to handle job agreements

Restrictive agreements can pose a huge dilemma for anyone starting a new job.

Here are some tips from legal experts on how to handle them:

Read the small print, understand what the provisions of the agreement are and what they mean, urges Toronto employment lawyer Ken Krupat.

Understand the difference between non-competition clauses, which could restrict you from working in a particular field; non-solicitation, which just stops you from going after your present employer’s clients; and confidentiality, which stops you from using the firm’s proprietary information, Mr. Krupat advises.

Consider what restrictions the agreement imposes — for instance, for how long it binds you, what geographical area it covers and whether it stops you working with all competitors or clients, or is more specific, advises Elisa Scali, an Ottawa-based associate in the law firm Gowling Lafleur Henderson LLP.

Remember that courts will be more likely to enforce non-solicitation than non-competition agreements, and favour terms that are limited to protecting legitimate business interests, rather than preventing people from plying their trade, both lawyers say.

Get independent legal advice, urges Toronto lawyer Stephen Shamie, a Queen’s University Business School professor.

Challenging an agreement could be a quick way of talking yourself out of your new job, but you can always use your knowledge and any legal advice you obtain to negotiate to make an agreement less restrictive, Ms. Scali says.

For example, the employer may be willing to scrap a blanket non-compete clause — which probably wouldn’t be legally enforceable anyway — for one that restricts an ex-employee only from working for specific competitors or with certain clients.

If you have to sign on the dotted line, you may be able to get a deal in which you will receive a bonus or a bigger severance package in exchange for putting your signature to a non-competition clause, Mr. Krupat says.

If you’ve already signed a restrictive agreement and are worried it might limit your next career move, Mr. Krupat suggests weighing the risks of your employer taking you to court.

Consider whether the new job you take is likely to have a significant impact on your old employer’s business.

If it will, the company may want to try to recover its losses with a law suit. If not, they probably won’t bother, he says.

If you are worried about a potential lawsuit over a restrictive agreement, talk to your new employers about it to see if they will help defend you and cover your costs in court, Mr. Krupat adds.

Kevin Marron

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