First published on Thursday, Jun 04, 2020

Last updated on Tuesday, Jul 02, 2024

When you employ new staff, you need to agree on a salary, working hours, leave entitlements, and any other benefits. By signing a contract and agreeing to these terms, both employer and employee are protected.

A legally binding contract will help avoid any conflict in the future, as well as make it clear to the employee clear what is expected of them.

In this guide, we’ll discuss the different types of contracts, if they’re necessary, and what to include in them.

What is a contract?

Legal contracts are spoken or written agreements between two parties that are intended to be binding by law. Business contracts are often split into five common types:

  • Non-disclosure agreement: This agreement protects a person’s confidential information.
  • Partnership agreement: The contract terms in this agreement dictate the business partnership between two parties.
  • Indemnity agreement: This document removes liability from one party in a business relationship.
  • Property and equipment lease: An agreement in which a person uses property or pieces of equipment for a period of time, in exchange for money. This can be extended at the end of the contract.
  • General employment contract: A written contract between employer and employee. Different elements of a contract describe every part of the job.

Is an employment contract necessary?

Although providing a contract of employment isn’t a legal requirement in Canada, it’s common to go down this route. There are many benefits to an employment contract:

  • Provides assurance to both parties at the start of the working relationship.
  • Removes any risk, time, and potential stress of arguing over an employee’s entitlements.
  • Employees will feel secure in their role.
  • A contract is a sign of commitment to an employee. This could lead to future career development.
  • Allows you to rehire the correct staff when someone is leaving but working their notice period.

If you choose to create a contract, ensure it’s signed by both parties before employment starts.

Can an employer terminate a contract?

Employers are entitled to terminate an employee’s contract for any reason. As long as this reason isn’t seen to be discriminatory.

You can also choose to terminate the employment of a contract worker at the end of their fixed-term contract. This is common in seasonable jobs over the holidays.

You are required to provide the employee with a notice of termination if you are choosing to end their employment in most circumstances. This is alongside severance pay if applicable.

Take this into consideration before deciding to terminate – employees could be owed up to 24 months’ pay under the common law.

The minimum amount of notice required for termination of a contract is stated in the employment standards legislation. Ensure you understand the local regulations for your province.

You may choose to include a termination clause as part of the employment contract. You will need to give your employee reasonable notice of termination under common law. This takes into consideration factors such as their age, length of service, position, and salary.

What should be included in a contract of employment?

When writing up an agreement, including the following contract rules and regulations surrounding their employment:

  • Classification of employment: You must specify the type of employment. Either full-time, part-time, or temporary.
  • Job title and responsibilities: A short description of an employee’s job role and what is expected of them. You should mention when performance reviews will be held.
  • Paid salary and benefits: You must state how much you’ll be paying them and how often. You must state details of any benefits, such as a pension, as well as any bonus schemes.
  • Leave entitlements: Include and explain your leave of absence, sickness, and paid-time-off policies. Also, make clear any disciplinary procedures surrounding unauthorized absences.
  • Termination details: Make it clear what actions can lead to contract termination.

Also, provide information about the notice period required when an employee resigns. You should also make it clear how and when a contract extension will be discussed. This is common with fixed-term workers.

You must include consideration in your contract. Without this, it isn’t binding or legally enforceable.

As an employer, you must give consideration to your employees for any modified terms in any new contract before they sign.

Is there a law surrounding contracts?

A contract is a legally binding promise under Canadian common law. If you or your employee failed to fulfil the promises made in the employment contract, this is a breach of contract.

This may differ across various provinces. Make sure your employment contracts are drafted in accordance with your provincial legislation:

A breach of contract may lead to your employee taking you to court, or vice versa. A court may order you to pay financial compensation or in some cases, a more severe punishment.

Get help with your contracts today with BrightHR

Signing an employment contract with your employees can strengthen the relationship and is a sign of commitment. Make sure you include all the elements required in a contract.

If you need assistance with your contracts, BrightHR has a handy tool that will make the whole process easier for you.

Our HR document storage tool allows you to store your employee contracts on the cloud for you to make changes whenever required.

Contact us on 18882204924or book a demo today.

Jenny Marsden

Associate Director of Service

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