EMPLOYMENT CONTRACTS:
The Quest For Shrapnel-Proof Agreements


Ian Werker
Barrister & Solicitor

Copyright (1999)


Shrapnel: (noun) nasty pieces of metal and other materials emanating from an exploding bomb that can severely injure unprotected victims in proximity to the explosion.
Shrapnel-proof: (adj.) describing a person (1) wearing protective gear sufficient to safely withstand shrapnel from an exploding bomb; (2) far away from the explosion.

Table of Contents
Introduction
Consideration
Before Employee Hired
Before Promotion/Raise
Employment Standards Pitfalls
Vacation Pay
Overtime
Termination Pay & Severance Pay
Statutory Notice/Pay
Statutory Severance Pay
Greater Right or Benefit
Common Law Issues
Probation
Probation not Implied
No Three-Month Limit to a Probationary Period
Onus and Standard of Cause on Termination
Unilateral Extensions of Probationary Periods
Notice Considerations for Probationers
Termination Provisions for Probationers
Cause
Mitigation Issues
Confidential Information
Fiduciary Employees
Restrictive Covenants
Practical Strategies
Down the Road - Conclusion


Introduction

So you want a shrapnel-proof employment contract. With about 20,000 lawyers in Ontario, that may be an unrealistic goal. Still there are a lot of things an employer can do to limit the risk of legal disputes and protect its interests.
The employment relationship is a mixture of personal and legal elements. The legal aspect is an important part to have right when the personal aspects are not going well.
It is helpful to understand the following:
* How and when is the employment contract established?
* What are common employment standards pitfalls?
* What are the primary common law issues? For example, what clauses are (and are not) implied into an employment agreement in the absence of express provisions? How is information protected, if at all?
* How does the common law balance the interests of the employer and employee in post-termination? What parameters govern attempts to restrict the activities of former employees?
In this paper I will survey these points, providing some examples and samples along the way.

Consideration

Before Employee Hired
The contract is formed when there has been offer and acceptance of the material terms of an agreement. The offer need not be in writing. It need not be accepted in writing. Conduct of the parties will often be used (after the fact) to determine what the provisions of the contract are. The document is not the deal, but only evidence of one. The crucial element of any contract is "consideration" - that is an exchange between the parties. Once the deal is in place, the same consideration can not be used again to obtain "add-ons".
To avoid confusion over the terms of the deal, an employer should make sure that the candidate receives the offer of employment before he/she starts work.
The employer should also make sure the offer contains all the material terms or expressly incorporates them by reference. If the employer wants a particular policy to be considered contractually enforceable against the employee, it should make sure that the policy is provided with the offer.
If the offer is not presented in writing in advance, by the time the parties attempt to reduce to the terms of the agreement to writing, they often find that they have different understandings of the deal. Unless the terms were discussed, employer "add-ons" such as a probationary period or restrictive covenant may fail because there was no consideration given for them.
Before Promotion/Raise
If the employer wants a particular clause to survive a promotion or change of positions, it should say so in the offer. Alternatively, the employer should make sure that a promotion or change does not take place until particular clauses are expressly continued (or new provisions are agreed upon).
By following these steps, the issue of consideration (or lack of it) should not become an issue. But, in situations where the issue of consideration does arise after the fact, all may not be lost. If a court finds that employees have not acted fairly, it may determine that continued employment to be consideration in order to uphold an agreement.2
Still, if the goal is to create a shrapnel-proof agreement, it is best to eliminate a weak spot by ensuring that issues of consideration are clearly dealt with in advance.

Employment Standards Pitfalls

The Employment Standards Act administrative provisions have been significantly scaled back. If an employee brings a complaint under the Act, he or she can not sue (even if the common law entitlement is greater that the minimum entitlement)3. Except for violations of the pregnancy leave (and lie detector) provisions, the maximum recovery in a complaint brought under the Act is $10,000.4
This has not changed core features of the Act. The Act says that employment standards are deemed to be a part of every employment contract. But if the employment agreement provides for a "greater right or benefit" the more favourable provision applies. An employee and employer cannot waive or contract out of a minimum standard.
Vacation Pay
The Act provides for calculation of vacation pay on earnings in the previous year (excluding vacation pay the employee received) at a rate of 4%. This normally translates into two weeks' paid vacation. The Act does not permit an employer to impose a "use it or lose it" policy on minimum vacation entitlements. Also, the Act says that employees must receive their vacation in one-week (or two-week) blocks time. An employee may not waive his/her entitlement to paid time off. The only time the Act contemplates payment in lieu of vacation is upon termination where the employee has accrued but not taken all his/her vacation to date.
If the employer calculates vacation pay based on "service" rather than wages earned, the greater right will apply. Note that employer may need to recalculate vacation pay accruals for employees who receive some of their earnings in the form of commissions (unless these employees are exempt under the regulations).
For employers who want to impose a "use it or lose it" policy on vacations, their contracts should expressly provide that only vacation in excess of the minimum standard is at risk if it is not taken.
Overtime
The exemptions under the Act pertaining to overtime are commonly misunderstood. The Act requires overtime to be paid for hours worked in a week in excess of 44. The overtime rate of time-and-one-half applies to hours the employer allows its employees to work over 44 in a week.
Employees on "salary" are not exempt from overtime pay. Aside from a host of particular exemptions pertaining to professional employees (e.g. lawyers, doctors etc.), only employees whose employment is "managerial" in nature are exempt.7 From an evidentiary standpoint, this can be a hard thing to prove.
While time off in lieu of overtime pay is permitted. "Lieu time off" must take the overtime premium into account. If an employee works 3 hours of overtime, he must receive 4.5 hours compensating time off.
The best strategy is to have employees submit weekly time sheets for hours they have worked. In the absence of employer records such as these, the employee's private records will generally prevail. The Act requires that such records be kept for 2 years from the date the work was performed.8 If the employer has good records, it will be able to fend off any overtime claims (that tend to surface after an employee's departure).
If the employer wants to limit over-time exposure, it should state in the offer of employment that over-time will only apply to hours worked in excess of 44 in a week. The offer of employment should also state that employees are required to follow the company's payroll procedures that include a requirement to submit time records on a weekly basis.

Termination Pay & Severance Pay

Statutory Notice/Pay
The Employment Standards Act requires the employer to give the following minimum written notice of termination/termination pay:
Period of Employment
Notice/Pay in Lieu of Notice
more than 3 months, but less than one year
1 week
more than 1 year, but less than 3 years
2 weeks
more than 3 years but less than 4 years
3 weeks
more than 4 years but less than 5 years
4 weeks
more than 5 years but less than 6 years
5 weeks
more than 6 years but less than 7 years
6 weeks
more than 7 years but less than 8 years
7 weeks
more than 8 years
8 weeks
Different statutory notice provisions apply to a "group" or "mass" termination of 50 or more within a four-week period. 9

Statutory Severance Pay
In certain circumstances, the Act also provides for statutory severance pay. Statutory severance pay obligations arise if:
* the employer has an annual payroll of $2.5 million (or terminates the employment of 50 or more employees within a six-month period), and
* the employee has 5 or more years of service.
Statutory severance pay is calculated based on a formula: 1 week of pay for each complete year of service plus 1/12 of a week of pay for each completed month in the last partial year, up to a maximum of 26 weeks' pay.
Statutory severance pay is distinct from statutory termination pay. It cannot be converted into working notice. However, in situations where an employee does not receive working notice but compensation instead, the case law is now clear: pay in lieu of common law notice obligation is inclusive of statutory severance pay. 10 There is no "double recovery".

Greater Right or Benefit

It is well established that if a contract of employment does not meet the requirements of a minimum standard, it will not be enforceable. In that case, the courts will default to applicable terms that the common law implies. The court will not look to the invalid contract to divine some other intention. 11
If an employer wishes to limit its exposure to the absolute minimums, the contract must expressly say this. It is not enough to write, "If the company terminates your employment without cause, the company will comply with its statutory obligations." This is the equivalent of: "In paying your salary of $100,000 per year, we will meet our minimum wage obligations."
To limit the employer to the minimums, the contract would have to be explicit. Consider the following example:
If the company terminates your employment without cause, we agree that the company's notice and/or severance obligations to you will be limited to those established and in force at the time under the Employment Standards Act or successor legislation.
This example is not very inviting. From an obvious practical standpoint, a clause such as the one above may create an obstacle to recruiting the caliber of employee desired.
Where the termination provisions are greater than the minimum standard at the time the parties enter into the agreement (but not by much), the employer may wish to consider the following example:
The termination and severance pay provisions in the agreement are intended to provide you a greater right or benefit than is currently required by the Employment Standards Act. If, with the passage of time or because of changes to legislated requirements, the provisions of this agreement do not satisfy a minimum standard, we agree that the company's notice and severance pay obligations to you will be limited to those established and in force at the time under the Employment Standards Act or successor legislation.12
As with all employment contracts, if a clause such as the one above is to have any long-lasting enforceability it would have to be re confirmed any time there is a material change in the employee's position. To enhance the longevity of a termination clause, the offer may further state:
We agree that the above provisions limiting the company's obligations to you on the termination of your employment to the minimum statutory requirements shall continue to apply if your job changes or if you receive a promotion, unless we agree otherwise in writing.

Common Law Issues

Probation
Probation may be defined as a trial period during which the employer will review and evaluate the employee to determine if he/she is suitable for ongoing employment.13
Probation not Implied
A probationary period will not be implied into a contract of employment and automatically imposed on the employee. In order to establish an employee's probationary status, this must be done in the offer of employment and agreed to before the employee starts to work.
If the employee accepts an oral offer of employment that does not specify a probationary period, then the deal has been made and no probationary period applies.14 The onus is on the employer to prove an alleged probationary term.
In the "real world" however, it is not unusual for an employer to present the "written agreement" for the employee to sign after acceptance of the offer (or worse, after the employee has started to work). As in any other situation, the document is not the deal; it is only evidence of the deal.
Even if there is a company policy that stipulates all new employees are on probation, the court will look to the circumstances of the hiring in question to see if the policies have in fact been incorporated into the employment contract.15
As a practical matter, many employees will not object to the addition of such a provision after hiring for any number of reasons. The employee may have mistakenly assumed that he/she was automatically on probation. The more likely explanation is probably that he/she needs the job and is not going to "make waves" during the proverbial "honeymoon period". However, in a situation where the employee has been recruited away from other secure long-standing employment, he or she may not passively accept the addition of a probationary term and may well have the bargaining power to make an issue of the attempt.
No Three-Month Limit to a Probationary Period
The common law does not impose any limit on how long a probationary period may be. At common law, no notice is required to terminate an employee on probation. This has been moderated by the Employment Standards Act16 (Act) which establishes a minimum statutory notice for all employees depending on their length of service.
The Act does not create a probationary status for employees. But it does say that no minimum notice is required for employees with less than 3 months' service.17
Given the interplay between the common law and the Act, probationary periods will generally run for 3 months. In effect, the statutory and common law notice requirements overlap during the first three months and employers may avoid the requirement to give notice to terminate for cause either at common law or under the Act.
In some cases, the nature of the position makes it prudent to establish a probationary period in excess of 3 months. For example, an employer can provide for a 6-month probationary period, so long as the employment contract complies with the minimum statutory requirement to give notice. If the employer wishes to terminate the probationary employment after the third month, it would have to give the employee at least 1 week's notice as required under the Act.18
Onus and Standard of Cause on Termination
The onus will be on the employer to prove that it terminated the employment of a probationer for cause.19
It is generally understood that the test for cause is lower for probationary employees than it is for "regular" employees who are not hired on (or have passed their) probation. Beyond that, the legal waters tend to become a bit murky.20
The leading case in this area is Ritchie v. Intercontinental Packers Ltd.21
Referring to Ritchie, the Ontario Court had the following to say about the onus and standard as it applies to probationers in comparison to regular employees:
The employer is still required to show just cause but there is a lower standard as to what will constitute cause. A probationary employee can be dismissed if he is simply found not to be suitable.

If the employee does not meet the standards of conduct reasonably imposed by the employer, he can be terminated in the probationary period. Similarly, a probationary employee who proves not to be compatible with the nature of the workplace or with other employees in the workplace can be terminated. All of this, of course, is subject to the requirement of the employer acting in a manner that is bona fide.22 (emphasis added)
In broad strokes, Ritchie can be used to support the following key points:
* The employer may evaluate suitability and/or compatibility (which involves an element of subjectivity).
* In doing so, it must impose reasonable standards of conduct (which imposes objective limits).
* Standards of conduct must be communicated to the probationer at the time of hiring.
* The probationer must be given a fair opportunity to meet those standards and should be reasonably informed (or warned) about his/her progress (or lack thereof) during the trial period.
* In assessing the probationer, the employer must make its determination for untainted valid reasons.
In light of this, an employer should be careful to consider and list the test criteria at the outset of the relationship, preferably right in the offer of employment. To avoid tainting its determination to dismiss, the employer must actually evaluate the employee against those criteria - and not other ones.23
In sum, the common law requires that the employer provide a probationer with a "fair, honest and valid assessment" of his/her competence and suitability for ongoing employment.24
Unilateral Extensions of Probationary Periods
Strictly speaking an employer may not unilaterally extend a probationary period without the consent of the employee. To do so would arguably constitute a constructive dismissal.
However, in most cases, the imbalance between the bargaining power of the employer and employee will usually result in the employee acquiescing in, or actively accepting, the extension by continuing to work for the employer. Having done that, the employee would be hard-pressed to subsequently assert a claim for constructive dismissal. 25 In addition, the employee who stays on in such circumstances will likely be found, in any event, to have mitigated most, if not all, his/her damages arising from an alleged constructive termination.
Notice Considerations for Probationers
Where the employer does not prove that the employee was a probationer dismissed for cause, it will be liable to provide notice or compensation in lieu of notice.
If the employment contract is silent on the point of notice entitlements, the common law will imply an obligation to provide reasonable notice based on the usual relevant factors.26
By definition, length of service of a probationer will be short. In these cases, other factors such as recruitment from other employment and the employee's actual period of unemployment will carefully considered by the court and may well result in a significant notice period.
For example, in Lalingo v A & A. Jewellers Ltd.,27 the Court found that the employer had not established a probationary period before the employee was recruited from other employment. It awarded notice of 4.5 months, taking into account an actual period of 9.5 months of unemployment. In Longshaw v. Monarch Beauty Supply Co.,28 the employer's termination decision was not found to be in good faith because it was based on criteria that differed from those established at time of hiring. As there was no just cause, it awarded the probationer a 6-month notice period.
While in many cases, the notice period for a short-service employee will not be longer than a month or two, there is no fixed limit as the two above examples show.
Termination Provisions for Probationers
An employer may avoid the uncertainty of assessing and applying the lower standard of cause for probationers by incorporating a specific notice period in the employment contract. For example, the parties may agree at the outset to a moderate notice period if the employer terminates employment for reasons other than cause during the first three to six months. This would enable the parties to end their relationship at a cost that the employer can presumably afford without arguing over cause. By the same token, establishing a specific contractual notice period for the short term would not affect the employee's longer-term entitlement to "reasonable notice" if the employment ends outside this initial period.29
Consider the following sample probationary employment clause that would cover a probation period lasting up to 12 months:
The first [insert number] months of your employment will be a probationary (trial) period. During your probation, we will assess your suitability for ongoing employment. It is important that you demonstrate a consistent satisfactory ability to [list as appropriate to the position]. The company may end your employment at any time during your probation upon giving you one week's notice (or at the company's option, one week's pay in lieu of notice).

Cause

Employees have an implied contractual obligation of good faith and loyalty toward their employer. An employer has an implied contractual entitlement to terminate an employee for cause. There is no exhaustive list of what will constitute cause for the dismissal of an employee. Because the list of implied grounds for "cause" is open-ended, there is little to be gained in defining cause in an employment agreement.
Mitigation Issues
It is well known that, absent any express provision in the employment contract, an employee will be entitled to reasonable notice or compensation in lieu of reasonable notice. At the same time, an employee who is terminated without notice is obliged to mitigate. The calculation of damages in any given case will depend on a combination of these two parameters. One can generally estimate a range of notice period with some degree of confidence. But, one cannot predict mitigation success with the same degree of certainty.
As a result, fixing the notice period (or lump sum payment in lieu of notice) in the employment contract may provide the employee with a windfall depending on whether he/she is able to find another job during the notice period.
Although it is not common, there is nothing to prevent the termination provision in an employment agreement from addressing this issue.
Consider the following example:
We may terminate your employment at any time without cause on giving you notice (or at our option, pay in lieu of notice, or any combination of the two) based on the following formula:
[insert desired formula]
If we choose to give you pay in lieu of notice for all or part of [applicable notice period] we will provide you with instalment payments equal to your [bi-weekly/semi monthly] salary in accordance with our usual payroll cycle until the end of the [applicable notice period] or until you are offered other employment (or become self employment), which ever occurs first.
If you receive an offer of other employment (or become self-employed) prior to the end of the [applicable notice period], the instalment payments shall stop and we will pay you instead a lump sum amount equal to 50% of the remaining instalments payments you would have otherwise received. As a condition of receiving the foregoing payments, you agree to advise us in writing immediately upon receiving an offer of employment or becoming self-employed.
Confidential Information
Employers are frequently concerned about disclosure of what they consider to be confidential information. The case law seems to divide confidential information into two categories: "confidential information" and "highly confidential information." 30 The distinction is not an easy one to maintain.
The former cannot be used or disclosed during the relationship contrary to the interests of the employer. It may not be protected after the employee's departure.
The latter will be protected after an employee's departure and will be accorded the same protection that the law gives to trade secrets. Even in the absence of any written restriction in an employment contract, employees are under an equitable and/or implied contractual obligation to maintain the secrecy of "highly confidential information" acquired in the course of their employment.31 This obligation indefinitely survives the termination of the relationship. It is therefore surprising to see in some instances where written agreements limit the period of non-disclosure when the common law imposes no temporal restriction - at least on secrecy of "highly confidential information."
More important than the wording of a written contract are the employer's practices. Using common sense, the employer should be realistic and make clear what information it actually considers confidential. Where possible the information should be marked as confidential and access to it should be limited to those who need to know it. The employer should also be consistent, taking care that its "confidential information" is not otherwise available to the public in promotional materials. In any given situation it may not always be easy to separate "confidential information" from general information that falls more into the category of a "tool of the trade". However, to the extent possible, it should be isolated from general information that an employee would be free to use.
The following are some example confidentiality clauses:
Example 1
You acknowledge your obligation to use confidential information only for the legitimate purposes of your position. You acknowledge and agree that after your employment ends, your obligation to respect the secrecy of confidential information continues indefinitely. Accordingly, you understand that you shall not disclose or use confidential information you acquired by virtue of your employment without the company's written consent, unless the information subsequently becomes public knowledge through authorized disclosure. You agree that the following shall be considered confidential, even though they may not individually be marked as such: {list}.
Example 2
1. The Employee further agrees that he will not, during the period of his employment, except in the proper course of his duties, or as might otherwise be required by law, divulge to any person or use for his own purposes, or for the benefit or detriment of others, proprietary information or information relating to specifications, price lists, customer lists or private affairs of the Employer (collectively, "Confidential Information") that may come to his/her attention. The Employee further agrees that he shall use his/her best efforts to prevent the disclosure or publication of Confidential Information that may come to his attention.
2. All Confidential Information disclosed by the Employer to the Employee shall be considered confidential whether marked as such or whether disclosed verbally, visually or in writing.
3. The Employee agrees to keep Confidential Information secret and shall not, (without prior written authorization from the Employer), after the termination of his employment by either party for any reason, use Confidential Information for his/her own purposes or for the benefit or detriment of others, or disclose Confidential Information to others unless the information:
i) was known to the Employee prior to disclosure by the Employer as evidenced by a written document;
ii) was publicly available at the time of the disclosure to the Employee by virtue of a printed publication;
iii) subsequently becomes publicly available by virtue of a printed publication through no fault of the Employee;
iv) is subsequently and rightfully acquired by the Employee from a third party who is not in breach of a confidential relationship to the Employer with regard to such information.
Example 3:
1. The Employee shall not (without written consent) either during or at any time after the termination of his employment use for himself or divulge to any person or persons any confidential information relating to the business affairs of the Employer and its affiliates and their respective customers which has come to his knowledge in the course of his employment.
Example 4:
Note in the next sample, the clause contains a provision in which the employee agrees not to breach any confidence owed to a former employer.
1. In the course of your employment you may acquire trade secrets, confidential or private information of Employer ("confidential information"), concerning, for example,
the names, address or requirements of customers or potential customers of Employer,
details of Employer application software and software developed by Employer for its customers,
prices, costs, margins and other financial affairs of Employer.
2. You acknowledge the confidential nature of such information, whether or not it is explicitly marked "confidential". You agree that, during the course of your employment or at any time after the termination of your employment for any reason, you will not
disclose confidential information to others, or
use confidential information to the detriment of Employer or for your own benefit or the benefit of others,
without prior written authorization from Employer.
3. You agree that you will not, in the course of your employment with Employer, breach any obligation of confidence which you may owe to others.
The detail appropriate for the clause will vary from one situation to the next.

Fiduciary Employees

Fiduciary employees are said to owe a higher level of duty to their employers in comparison to "regular" employees. Corporate officers are generally considered to be fiduciaries. "Regular" employees who team up with fiduciaries may also be tagged with fiduciary obligations. So-called "key employees" employees may also be considered fiduciaries.
In an employment context, a fiduciary must be in a position to exercise discretion or power over the affairs of the employer. The affairs of the employer must be vulnerable to the manner in which the fiduciary carries out his/her responsibilities.
For example, because a corporation can only act through its officers, it is vulnerable to them. Accordingly the corporation is entitled to rely on them to act in the best interest of the corporation and not to act in their own self-interest.
It follows that fiduciaries cannot take away a business opportunity from the company. For a reasonable time following their departure, they may not solicit business from customers of their former employer.
From a drafting perspective, for high level positions, it may be appropriate to confirm in the employment offer the employee will be considered a fiduciary. A sample clause might read as follows:
In accepting this position, you acknowledge that you will become a fiduciary employee and agree to be bound by all common law obligations pertaining to fiduciary employees.

Among other things, this means that you must act in the best interest of the employer at all times. If your employment with us ends for any reason, you understand and agree that you shall not directly or indirectly solicit business from our customers during the 6 months immediately following your departure (which you acknowledge and agree is a reasonable period of time).
It is important to note that in the case of a fiduciary, even in the absence of an express provision in his/her employment agreement, the common law will imply similar restrictions in any event. The benefit of having the points referenced in the employment agreement is that the employee would have more difficulty in denying his/her status as a fiduciary, if the issue later became contentious.

Restrictive Covenants

Restrictive covenants can be generally divided into three main categories:
1. Non-solicitation of employees;
2. Non-solicitation of customers; and,
3. Non-competition.
This is an area of law where less is more. Contracts that are in "restraint of trade" will generally be considered invalid unless the party seeking to rely on the restraint can demonstrate to the court that the restrictions are reasonable. Accordingly, the narrower the restriction, the more likely the court will consider it to be reasonable.
In considering what is reasonable, courts look to see if the proponent of the restrain has a legitimate interest to protect. If the interest is "proprietary" in nature, the restraint is more likely to be upheld. A recent case, Phytoderm Inc. v. Urwin32 held that, 33
As a matter of first principles, there is no proprietary interest in customers. Customers are free to deal with whom they please and it is in the public interest that this is so.
The Court went on to observe that in those cases where restrictive covenants have been upheld, they tend to deal with situations where the covenantor has sold the covenantee goodwill or was a fiduciary employee.
Next the courts look at the temporal and spatial features of the restriction. If the area covered or duration of the restriction is too long to be considered reasonable, it will not be upheld.34
Finally, if there is any ambiguity in the wording of the restrictive covenant, it will be construed against the party seeking the restraint.
Courts have upheld restrictions lasting as long as 3 years.35 However, it is unusual for a court to enforce restrictions lasting longer than 2 years.
For whatever utility they may provide, a few sample clauses are provided below:
Non-Solicitation of Employees
Covenants precluding solicitation of employee are best kept to fiduciary employees. If possible they should be limited to specific employees with whom the employee worked. Consider the following example:
You agree that during the six-month period immediately following the termination of your employment for any reason, you will not directly or indirectly persuade any of our employees to resign. During the six-month period immediately following the termination of your employment for any reason, you further agree not to offer employment (on your own behalf or on behalf of a third party) to any employees of the company with whom you formerly worked or who formerly reported to you.
Non-Solicitation of Customers
Example 1
You agree that during your employment you will acquire specific and detailed information about our customers and prospective customers ("Customers") pertaining to type of products and services you will sell on our behalf ("Products").
If your employment with us ends for any reason, you further agree that it would be unfair for you to make use of that information to sell Products (on your own behalf or on behalf of others) to Customers with whom you dealt during the last 12 months of your employment with us ("Restricted Customers").
Therefore, you agree that, during the 6-month period immediately following the termination of your employment for any reason, you shall not directly or indirectly solicit the sale of the Product or substitutes for such Product from Restricted Customers.
You agree that this is a reasonable restriction that will not otherwise prevent you from earning a living.
Example 2
The Employee shall not, within the six-month period following the termination of his/her employment for any reason, solicit Business from company Customers. Business means the same products or services that the company sells (or substitutes for them). Customers means any customers or potential customers of the company on whose account the Employee worked or with whom the Employee dealt during the last 12 months of his/her employment with the company.
Non-Competition
1. As a condition of employment, the Employee agrees that, he shall not, without written authorization from the Employer,
(A) compete with the Employer for himself or for another, within the * month period following the termination of his/her employment for any reason,
(B) within the market place he worked on behalf of the employer, namely, the area within a * kilometer radius of the Employer's premises at [insert address].
2. The Employee recognizes the employer's vulnerability in the market place. The Employee acknowledges that the duration and geographic scope of the above restriction are reasonable.
3. The Employee confirms that the above restrictions will not preclude him/her from earning a livelihood following the termination of his/her employment for any reason.
3. The Employee agrees that, in addition to any other legal rights the Employer may have, it would be reasonable for the Employer to enforce the above restriction by way of a court injunction.
To enhance the enforceability, the employer should consider limiting restrictions to those employees who resign or whose employment is terminated for cause. It is hard to support a restraint where the employee has been terminated without reasonable notice. Alternatively, the employer should ensure that for such employees, they continue to receive compensation over the notice period, if the employer is not prepared to waive the enforcement of the restriction.
Before granting an injunction the court must be satisfied that the balance of convenience favours the employer and that the employer will suffer irreparable harm if the injunction is not granted.36
There is always a risk that clauses like the one above would not be enforceable. Underlying the legal arguments is always a common sense analysis of whether the former employee is engaging in "unfair" tactics. If the conduct of the former employee offends the court's sense of "fair play", a court will be more likely to uphold a restrictive covenant.

Practical Strategies

From the above, one can glean a number or practical strategies concerning protection of an employer's confidential information and client base. These would include the following:
* To the extent possible, the employer should put in controls the limit access to confidential information.
* Mark confidential information as such.
* Make sure that sales reports are submitted regularly. Log the information in the employer's database so that if an employee leaves, the employer has the necessary information to service the customer's needs.
* To the extent possible, make sure the customer has material dealings with more than one employee, thereby enhancing the prospect of solidifying the customer relationship in the event of an employee departure.
* Always conduct an exit interview with departing employees.

Down the Road - Conclusion

An employer does not have to leave basic terms of employment (or termination of employment) to chance or a court's assessment of "reasonable" provided the contract meets the minimum legislative requirements.
Anecdotally, there is a trend to simpler language and less formality in employment contracts. This will likely continue especially as we use faster familiar forms of communication like e-mail.
As employees become more sophisticated or experienced because of previous "right-sizings" and reorganizations, it is more important than ever to evaluate the nature of the position contemplated and tailor the employment offer accordingly.
This paper has provided a number of sample clauses, as a means of highlighting the issues. No one clause will work for all situations. Standard-form employment contracts are useful but only if used thoughtfully. This is particularly so when the employer is seeking to impose onerous terms of employment or restrictive covenants where there is a substantial risk restrictive provisions will not be upheld.


1 See for example, Hannan v. Methanex Corp (1996), 26 C.C.E.L. (2d) (B.C.S.C) where a court allowed a former employee to collect on a bonus after he had executed a full and final release that expressly excluded further bonus claims.
2 Atlas Farm Services of Canada Ltd. V. Mikitish et al (1997), 32 C.C.E.L. (2d) 220 (Ontario Court of Justice, General Division). In this case a predecessor employer has employment agreements with its employees. Upon a corporate reorganization, a new company became the employer that purported to "assign" the employment agreements. Normally contracts for personal service are not considered assignable. Here the court found that there was implied consent to the assignment and that continued employment with the new company was legal consideration. In the result, employees of the accounting firm were enjoined from receiving business from clients of the employer for a period of up to 18 months.
3 Employment Standards Act, R.S.O. 1990, c. E.14 as amended, s. 64.3
4 Employment Standards Act, R.S.O. 1990, c. E.14 as amended, s. 65(1.4)
5 Employment Standards Act Regulation 325 R.R.0. 1990, s. 3(h) exempts from vacation pay entitlements itinerant sales representatives who earn some or all their compensation in commission.
6 Employment Standards Act, R.S.O. 1990, c. E.14 as amended, s. 24
7 Employment Standards Act Regulation 325 R.R.O. 1990, s. 6(b) references employees "whose only work is supervisory or managerial in character".
8 Employment Standards Act, R.S.O. 1990, c. E.14 as amended, s. 11(1)
9 Employment Standards Act Regulation 327, R.R.O. 1990, s. 4
10 Stevens v. Globe & Mail (1996), 19 C.C.E.L. (2d) 153 (Ont. C.A.)
11 Machtinger v. HOJ Industries Ltd. (1992), 40 C.C.E.L. 1 (S.C.C.)
12 For example see, Leerdam v. Stirling Douglas Group Inc. (March 31, 1999), unreported, Ont. Ct. (Gen. Div.), 97-CV-131523SR, where the court upheld a termination provision that provided for 1 week's notice for a termination within the first 12 months of employment. The Court also discussed the obligation to provide reasonable notice of termination to "contractors", absent specific contractual provisions. Even for consultants, it would be prudent to ensure that termination provisions at least meet the minimum statutory requirements applicable to employees under the Employment Standards Act.
13Longshaw v. Monarch Beauty Supply Co. (1995), 15 C.C.E.L. (2d) 232 (B.C.S.C.), at p. 240
14Lalingo v. A & A. Jewellers Ltd. (1997), 27 C.C.E.L. (2d) 211 (Ont. Gen. Div.) where notice was 4.5 months.
15Lalingo v A & A. Jewellers Ltd. ( 1997) 27 C.C.E.L. (2d) 211 (Ont. Gen. Div.) at pp. 216-217 where company policies were not brought to the employees attention prior to hiring.
16R.S.O. 1990, c. E.14 as amended
17R.S.O. 1990, c. E.14 as amended, ss. 57(1)(a)
18R.S.O. 1990, c. E.14 as amended, ss. 57(1)(a)
19Sometimes referred to as "just cause".
20For a detailed analysis of just cause as it applies to probationers see: Just Cause - The Law of Summary Dismissal in Canada, Echlin, Randall Scott and Certosimo, Matthew, Canada Law Book Inc., 1998.21(1982), 2 C.C.E.L. 147 (Sask. Q.B.)
22Miguna v. African Canadian Legal Clinic (1996), 18 C.C.E.L. (2d) 131 (Ont. Gen. Div.), at p.135
23Longshaw v. Monarch Beauty Supply Co. (1995), 15 C.C.E.L. (2d) 232 (B.C.S.C.) where the decision to terminate the probationer was found not to be in good faith because it was made on criteria different from those established at hiring.
24Canadian Employment Law, Ball, Stacey Reginald, Canada Law Book Inc., 1997, p. 11-45
25Miguna v. African Canadian Legal Clinic (1996), 18 C.C.E.L. (2d) 131 (Ont. Gen. Div.), at p.134
26Bardal v. Globe & Gail (The), [1960] O.W.N. 253, 24 D.L.R. (2d) 140 (H.C.J.): 1. Character of Employment; 2. Length of Service; 3. Age of the Employee; 4. Availability of similar employment, having regard to the experience, training and qualifications of the employee.
27(1997) 27 C.C.E.L. (2d) 211 (Ont. Gen. Div.)
28(1995), 15 C.C.E.L. (2d) 232 (B.C.S.C.)
29Slater v. Sandwell Inc. (1994), 5 C.C.E.L. (2d) 308 (Ont. Gen. Div.)
30 Faccenda Chicken Ltd. v. Fowler, [1986] 1 All E.R. 617 (CA)
31 Trade Secrets and the Employment Relationship by Michael G. Horan and Ian D. Werker in Trade Secrets, Roger T. Hughes, Editor (Law Society of Upper Canada -1990)
32 Phytoderm Inc. v. Urwin (February 5, 1999), unreported, Ont. Ct. Gen. Div. 98-CV-157394
33 Phytoderm Inc. v. Urwin (February 5, 1999), unreported, Ont. Ct. Gen. Div. 98-CV-157394, page 10-11
34 A court may "sever" offending portions of a restrictive covenant that provides alternatively for a 12-, 18-, or 24-month restrictions. For an example, see Atlas Farm Services of Canada Ltd. V. Miktish et al. (1997) 32, C.C.E.L. (2d) 220 (Ont. Ct. (Gen. Div.)).
35 For example, Avva Light Corp. v. Komoski (1997), 30 C.C.E.L. (2d) 54 (Alta Q.B.)
36 See, for example, Total Credit Recovery v. Koyama-Asada (1998), 34 C.C.E.L. (2d) 125 (Ont. Ct. (Gen. Div.)), where the employment agreement only provided for a 3-month period of non-competition. But, the former-employee did not have a role in solicitation of customers. Accordingly, the court was not satisfied that that the plaintiff had made out a strong prima facie case and the balance of convenience favoured the employee who would lose his means to earn a living if the injunction were granted.
Employment Contracts - Continued
Ian Werker, Barrister & Solicitor

This paper is for general information only. It is not intended to provide legal advice for any particular situation and should not be construed as doing so.


Employment Contracts:
The Quest for Shrapnel Proof Agreements
By Ian Werker, Barrister & Solicitor
393 University Avenue, Suite 2000
Toronto, Ontario M5G 1E6
Phone: (416) 593-7552
Fax: (416) 593-0668
E-mail: employ@interlog.com



6

Employment Contracts - Continued
Ian Werker, Barrister & Solicitor