The Hiring Process is Not Finished Until the Paperwork is Done

Employers often invest a lot of resources and time recruiting employees. After the applications are reviewed and screened, the interviews conducted, and the successful candidate chosen, employers often either forget to finish the hiring process by having the employee complete an employment agreement, or delay getting the employment agreement completed.

That failure or delay can have disastrous consequences. In the recent Ontario court decision of Holland v. Hostopia.com Inc., an employer found out exactly how disastrous.

Mr. Holland was recruited to fill a sales position with the employer. At the time of hire, Mr. Holland was given an offer of employment, which set out the basic terms of employment. That offer indicated that a formal contract of employment would be prepared and provided to Mr. Holland. Mr. Holland signed the employment offer and commenced employment.

Nine months later, Mr. Holland was given a contract of employment, which he signed without protest. In the contract of employment, but not in the letter of offer, was a term that allowed the employer to terminate Mr. Holland, without cause, by providing him with the appropriate amount of notice required under the employment standards legislation. The contract also provided an acknowledgement that Mr. Holland read and understood the terms of the contract, and that he had been given an opportunity to seek independent legal advice.

Seven years later, Mr. Holland’s employment was terminated without cause. On termination, the employer attempted to rely upon the terms of the employment contract. The employer paid Mr. Holland an amount which was slightly more than what Mr. Holland would be entitled to under the employment standards legislation.

But, not so fast. Mr. Holland argued that at the time of hire, he had not agreed to any limit on the amount he would receive on termination. The Ontario Court of Appeal agreed. Giving Mr. Holland a contract of employment nine months after he started employment, without also giving him something in exchange for his signing the agreement (consideration), meant that the employer could not rely on the additional terms included in the contract of employment.

In making this decision, the Ontario Court of Appeal relied upon a number of earlier decisions to the same effect, that any attempt by an employer to get an employee to agree to new terms of employment after hire, without giving the employee something in exchange – such as a pay increase or lump sum payment– are of no effect. As a result, the court determined that Mr. Holland was not bound to accept only the employment standards minimums, but instead he was entitled to payment in lieu of reasonable notice (a much greater amount) on termination. The reasonable notice period is determined on a case-by-case basis with reference to the character of employment, availability of similar work, length of service, age, and qualifications of each employee.

Employer Takeaways

1. Offers of employment may not be sufficient. Many employers continue to use simple offers of employment. Offers of employment most often do not contain one of the most important provisions in the employment relationship – the termination provision. If you are going to use only an offer of employment when hiring employees, be sure that all the terms of employment are set out in the offer. However, you will find that approach will result in the offer of employment looking very much like an employment agreement.
2. If you are going to follow up an offer of employment with an employment agreement, do it before the employee starts work. Other employers, who want to get the new employee signed up, will do what the employer here did – provide an offer of employment, with the promise of an employment agreement to come later. If this is your approach, then you must be sure that the employment agreement is signed by the employee before the employee begins employment. Remember that the employment agreement must not be inconsistent with the terms of the offer of employment.
3. Employment agreements and offers of employment must include provisions for termination. One of the reasons pre-nuptial agreements are popular is that both parties recognize that the best time to talk about divorce is when everything is shiny, new and rosy, and when neither party thinks that divorce is possible. The same is true in the employment relationship.

The best time to confirm what the termination period will be is when the employment relationship is just beginning. Then, just as in a marriage, there is no anticipation that the employment relationship will ever come to an end. It is always more difficult to discuss and agree to termination provisions when the relationship is starting to sour.