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employee agreements
employee agreements

Employee Agreements – A Lesson In Legal Advice

When an employee is preparing to sign a new employment contract, they should always be allowed to review that contract with a lawyer as a matter of course. A well-written employment contract will state explicitly that the candidate has had the opportunity to review the document with a lawyer before signing, but every new employee should be given a reasonable opportunity to do so.

This should not be something to strike fear into the hearts of employers. If a contract is written well, an employee may just obtain a cursory review before signing wherein the lawyer will explain to them the logistics of the contract and what they are agreeing to. Depending on the nature of the proposed working relationship, the lawyer might suggest some changes for the employee to request, and some slight negotiations might take place prior to any sign-off. 

The law recognizes that the employer is always in the driver’s seat, hence why it is important for the employee to start the working relationship on equitable footing. However, a recent case has shown that that initial legal advice may be more valuable than it is cursory. Even if a contract itself has issues, if an employee received independent legal advice before signing then they may just be held to it.

Setting The Scene Through ‘Waksdale’

One of the key rules of an employment contract is that it cannot violate employment legislation, which for most Ontario employers is the Employment Standards Act (“ESA”). The ESA is what sets the minimum standards for employment, such as overtime rules, vacation allowances, and termination pay. A contract can offer an employee more than their legally guaranteed minimums, but it cannot offer less. Courts are protective of this, and in the past have gone so far as to invalidate contracts if any part of the agreement violated the ESA.

That was the premise of what happened in a 2020 case known as Waksdale (Waksdale v. Swegon North America, 2020 ONCA 391). An employee, who was terminated without cause, filed a lawsuit against his former employer and claimed that the ‘just cause’ portion of the termination section in his contract violated the ESA because it did not provide the legally required notice. The fact that he himself was not terminated with cause did not matter – the Court of Appeal found that because that portion of his termination clause violated the law, the entire section was then invalid. 

The Court of Appeal explained their reasoning in the Waksdale decision:

“An employment agreement must be interpreted as a whole and not on a piecemeal basis. The correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA. Recognizing the power imbalance between employees and employers, as well as the remedial protections offered by the ESA, courts should focus on whether the employer has, in restricting an employee’s common law rights on termination, violated the employee’s ESA rights.” [underlining added]

The decision seemed like a game-changer for employment law, since the Court now effectively ruled that a contract could be declared illegal even if a problematic section was not relevant to a specific case. However, despite this ruling, the Ontario Superior Court recently decided differently in large part based on an employee’s legal advice.

Where Rahman Tells A Different Story

In the recent case of Rahman v. Cannon Design Architecture, 2021 ONSC 5961, Ms. Rahman was a Principal at her employer’s architecture firm for four years until her termination at the start of the pandemic. In her legal claim, part of Ms. Rahman’s argument for a greater notice period (i.e., an increase in her termination pay) was that the termination clause within her employment contract was invalid due to the just cause provision violating the ESA minimum requirements. 

The Court, however, disagreed. In their analysis, they paid attention to the fact that Ms. Rahman was a fairly senior-level employee, and she did not suffer from the power imbalance that usually impacts employees trying to negotiate against their employers. In the Court’s own words, “The offer letter is neither unconscionable nor contrary to public policy in any way. It was freely entered into between two reasonably sophisticated parties in the absence of any particular disparity in bargaining power.”

The other key piece of Ms. Rahman’s circumstances that the Court took notice of is that she had obtained legal advice during her contractual negotiations. There are arguments in contract law dating back over a century that a person could not have agreed to the terms of a contract because they were not fully aware of what they were signing. This is in part why it is important for employers to allow the employees an opportunity to obtain independent legal advice so that they cannot make the argument later that they were unfamiliar with their terms, or taken by surprise at all. 

In Ms. Rahman’s case, while her legal advice would ordinarily have remained privileged, the Court had access to a letter that her lawyer had sent to her employer during negotiations, which indicated that she had received comprehensive advice about her employment contract, including its termination provisions. In the Court’s view, “There can be no suggestion that Ms. Rahman was not adequately informed of both the nature of the statutory and common law rights that were the subject of the negotiations and the impact of the contract proposed by the employer on those rights.” Ms. Rahman had negotiated her contract, those negotiations led to improvements over the company’s initial offer, and she subsequently signed off. The Court ultimately ruled that Ms. Rahman’s contract did not violate the ESA, and was therefore enforceable.

The Takeaway

The Court’s decision is a bit of good news for employers but also speaks to the importance of legal advice. A well-written employment contract can protect employers from potential claims but also can ensure that the contract is in line with the latest legal requirements. Employment law changes frequently, and contracts should be reviewed at least once a year to ensure that they are still compliant. We regularly advise employers in the Cambridge, Kitchener, and Waterloo region about their employment issues. Contact us today to discuss your employment matters and how we can help keep your workplace running smoothly.