How do employment contracts work?

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It’s easy to incorrectly assume that a person does not have an employment contract if the employment relationship never involved a signed document. However, as a matter of law, all employment relationships involve employment contracts, but some of these “contracts” happened to take place on a solely oral basis. These oral contracts apply even if the employer and the employee never actually discussed an intention use a “verbal contract”. 


Many employers and employees often overlook certain important elements of the employment relationship. After all, it’s easy to assume the only major issues to consider are salary, vacation and hours. However, one of the most common reasons employers and employees end up in Court is due to a dispute about the end of the employment relationship, and the employee’s rights when being fired. 


If a particular employment contract doesn’t deal with a particular issue, the Court may “imply” terms into the employment contract. In other words, the Court can create certain terms and conditions that weren’t actually in the contract, but the Court will decide the case as if those terms and conditions were in the original contract.


The types of subject matter that often form the subject matter of legal disputes in employment law are as follows: (i) the termination clause or, if the contract does not contain a termination clause the employee’s entitlement to reasonable notice (ii) clauses that set out an employee’s entitlement to variable compensation such a bonus, commission and/or stock options; and (iii) Non-competition and non-solicitation clauses. 


Many employment contracts have clauses that can’t be enforced in court. The fact that an employment contract describes an employer’s entitlement or an employee’s obligation does not mean that a Judge will use that particular clause in making a decision about a particular case. Furthermore, if the wording in an employment contract is somewhat vague and open to interpretation, then a Court will interpret the contract in the way that most favours the employees.


You should always have a lawyer review any employment contracts before signing it. An employment lawyer can usually decide whether a particular clause will be enforced.