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Media Centre :: Levitt's Corner ::

Because it’s in Writing, Doesn’t Make it So: Employment Contracts Must Follow Labour Policy to be Enforceable

Howard Levitt Financial Post: 27 July 2005 National Post: (c) 2005 National Post. All Rights Reserved.

The first day on the job, Trusty Francis was presented by his employer, the Canadian Imperial Bank of Commerce, with numerous forms to sign. One was titled Employment Agreement. Like most new employees, he read and signed the document, then put it out of his mind.

Years later, when Francis sued CIBC for wrongful dismissal, he was confronted with the Employment Agreement, which, he learned, limited his entitlement to severance pay to up to three months. The bank argued a deal was a deal and Francis was bound by the agreement he signed.

This view is accepted by most employees and employers and illustrates the prevalent, unfounded myth in the work place about the enforceability of signed agreements.

The Ontario Court of Appeal ruled that the Employment Agreement signed by Francis was not valid. The real employment agreement had been reached weeks prior to his first day of work when its terms, including the job duties, salary and benefits, were finalized. A new agreement would be enforceable only if Francis had received something of value, such as a signing bonus, in return for his voluntary signature. That did not occur and Francis was thus awarded damages for wrongful dismissal, well in excess of three months.

Another application of the myth is the enforceability of non-competition covenants. Bernard Lyons, an oral surgeon, hired Joseph Malteri as an associate in his practice in Windsor, Ont. As a condition of hiring, Malteri agreed in writing not to open a dental practice within a five-mile radius of Lyons office for three years after he stopped his employment. Malteri eventually left, and he opened a practice within six months and 3.7 miles from Lyons' office. Lyons proceeded to sue Malteri for breach of his agreement.

Lyons lost, although Malteri had voluntarily agreed to the covenant. The Ontario Court of Appeal reaffirmed the courts' presumption that non-competition restrictions are against public policy, which promotes the freedom of employees to work in their field of endeavour.

A non-competition covenant is upheld only in exceptional circumstances, such as: if it is not overly broad; the employer will be seriously injured by an ex-employee's competitive activities and the employer's business will not be adequately protected by a non-solicitation provision. Lyons could not prove he fell within the exceptions. Had he proposed a less restrictive provision to merely preclude Malteri from soliciting his patients, Lyons would have won.

Many employers, influenced by the U.S. legal system, maintain they can negotiate any termination provision. When Marek Machtinger was hired as a sales representative by HOJ Industries, he signed a contract of employment that allowed him to be terminated without cause or notice. Gilles Lefebvre signed a contract with the same employer, which called for termination without cause on two weeks' notice. After they were dismissed, they were paid more than their actual contracts and given four weeks of termination pay as required by the Ontario Employment Standards Act. Dissatisfied with these payments, they sued for damages for wrongful dismissal.

The employer argued the employees were bound by their written agreements. The Supreme Court of Canada disagreed, awarding the employees damages. Parties do not have the latitude to enter into contracts of employment that provide for notice periods that are less than the minimum provisions of the employment standards legislation.

Employers would be well-advised to consult with an employment lawyer before introducing and implementing employment contracts. To rely on commonly held misconceptions that a deal is a deal, if it is in writing, simply invites trouble.