Written by: Kyle J. Allen, Associate, Brownlee LLP
Planning on providing existing employees with new employment contracts that attempt to limit their entitlement to working notice or severance in the event of a without cause termination? If the employees were not previously bound by severance-limiting termination clauses, there are many contractual enforceability issues that first must be considered by an employer. Here are a few major issues to consider:
Has the employee been provided with fresh “consideration”?
If an employer wants to bind an employee to a severance-limiting termination clause for the first time pursuant to a new employment contract or offer letter, for the clause to be enforceable, the employee must receive something of value in exchange for agreeing to the less favourable severance-limiting terms of employment. For example, in exchange for acceptance, an employer may provide the employee with a promotion and raise, or additional vacation days. Short of doing so, even if the employee voluntarily and unequivocally agrees to the new employment contract or offer letter, the enforceability of the severance-limiting termination provision would be vulnerable to a successful legal challenge.
Has the employee been provided with the proposed new employment contract in advance, and in connection had an opportunity to seek legal advice?
Another contractual enforceability related mistake employers commonly make when implementing new employment contracts with severance-limiting termination provisions is failing to provide the employee with a reasonable amount of time to review and consider a new contract, as well as obtain legal advice, before signing the contract. While there is no hard and fast rule regarding the number of days an employer should provide to an employee to review and ultimately sign a new contract, in ordinary circumstances, something in the range of 3 – 5 business days is likely appropriate. Of course, if an employee requests a reasonable extension to review and consider, the extension should be granted.
In addition to providing the employee with time to review and consider, as well as seek legal advice on, the new proposed terms and conditions of employment, it is also prudent to include a clause in the contract acknowledging that the employee had the opportunity to obtain legal advice and either did so, or waived such opportunity. A clause of this nature may assist an employer in defending any future assertion by an employee that the severance-limiting provision is or was unenforceable, and/or an assertion that he or she did not have reasonable opportunity to obtain independent legal advice.
Brownlee LLP is a Gold Sponsor of the 2018 CPHR Alberta Conference: HR Undefined.
About the Author: Kyle J. Allen: Kyle began working at Brownlee LLP in 2011 as a Summer Law Student, after which, he continued with Brownlee LLP as an Articling Student (Student-at-Law) from July 2013 to July 2014. As an Articling Student, Kyle’s desire to practice labour and employment law was confirmed. In August 2014, he was ultimately accepted by Brownlee LLP as an Associate in its Labour and Employment group practice area. Kyle helps all types of employers handle all forms of labour and employment issues by providing strategic, practical, and cost-effective advice. Learn more about Kyle and his areas of expertise here.