What you should know before signing your employment contract


Written By: Jillian Climie.


After you’ve gone through a lengthy recruiting process, the last thing you might want to do is spend time and energy reviewing and negotiating your employment contract. However, these contracts can significantly impact your life, and understanding them in detail can provide you with an inside look at a company’s culture. To learn more about the key clauses you should be aware of, pieces that are negotiable, and new trends, I sat down with Paula Krawus and Erin Brandt, co-founders of PortaLaw, an employment and human rights law firm.


Note: this article will be most relevant to our Canadian readers.


What should employees look out for when signing a new employment contract?


Employees should be aware of limitations on their entitlement to severance. Severance is the amount of money your employer pays you upon termination of your employment without cause. Employees have a right to common law severance, which typically ranges from 0-24 months of salary paid, and is roughly one month of pay for every one year of service (but payouts depend heavily on a variety of factors including time at employer, role, age, and industry). However, many contracts state that the employer will only pay the minimum under the Employment Standards Act, which is often much less than common law. In these situations, you can consider negotiating a new minimum amount. At a high level, you should be negotiating for coverage of how long it will take you to find a new position if you’re terminated.


In these negotiations, make sure to take into account your non-compete clause. Non-compete clauses restrict you from working for certain employers or from setting up your own business, both during and after you leave your employer. If your contract includes a broad non-compete clause, that could give you grounds to negotiate a longer severance package as it will take you longer to find a job. The employer should be paying for the benefit of having you on the sidelines.


Also, ensure you understand what happens to your incentive and equity compensation (bonuses, commission, stock options, etc.) on termination. There can be stringent policies around these. For example, an annual bonus you’ve earned for 2022 is not actually yours until it is paid out months into 2023. We’re seeing case law starting to get more employee-friendly around these situations, but it’s always best to not be surprised.


Are there any call-outs you have for employment contracts in specific industries?


For the technology industry, employees should be aware of intellectual property clauses. These can be very broad, and in some cases include that your employer owns anything you create, even if it’s outside of work (e.g., if a software developer writes a song outside of work, the employer would have ownership over it). For those creative technology employees with side hobbies or businesses, read these clauses thoroughly before signing them. Additionally, technology employees in many instances are not eligible for overtime pay, so take this into account when you’re negotiating your compensation.


For sales roles, an important piece to be aware of is knowing that your vacation pay should be calculated using your commissions. For example, if you make a $50,000 base salary with an annual commission of $100,000, your vacation pay should be calculated off of $150,000. Also, be aware of non-solicitation clauses that are very restrictive around where and how you can solicit clients after you leave your employer.


For start-up companies, if you’re accepting lower compensation for ownership in the company, make sure you thoroughly understand it. Know the restrictions around it, especially the exit strategy and how the exit price will be determined. Read the equity plan text and/or shareholder agreement before signing anything.


Ontario has recently outlawed non-competes, but we’re still seeing a lot of these come up in contracts. What should Ontario employees be aware of here?


Non-competes in most cases are non-enforceable in Ontario. The reason we’re still seeing them in contracts is because companies include them as scare tactics for those who aren’t familiar with the law, when really they have no impact. Overall, if a non-compete or non-solicit clause seems alarming, it probably is. Trust your gut and get an advisor to support you.


As women, are there any specific factors we should be taking into account?


Be aware of the gender pay gap, and take that into account in negotiations. There are protections under law for equal pay for equal work. Negotiating your contract is really the best opportunity you have at closing these gaps (note: this is where The Thoughtful Co comes in!).


Also, do your research before joining an employer. You can Google companies to see if they have been sued before for human rights or discrimination issues. If former employees are hesitant to speak about their time at the employer, it could be a sign of non-disclosure agreements that are in place. Lastly, think about what kind of interview questions you’re being asked. For example, legally employers cannot ask you questions around your family situation, and that can be a red flag for an employer’s culture.


Have you seen any changes in employment contracts over the past few years given COVID-19 and the tight labour market?


Many employers are now including voluntary lay-off clauses in contracts, which were infrequent before COVID-19. These clauses enable employers to lay you off on a short-term basis, up to a maximum number of weeks (in British Columbia this is 13 weeks within a 20-week period), under very specific scenarios (i.e., slow down of business). This clause is still in accordance with the Employment Standards Act, but having it up front in a contract means you are consenting to it.


We’re also seeing many more work-from-home policies and stipends in contracts. Even for companies with remote work policies, they are stating where the employee’s home office is based so they know they are in compliance with tax and legal considerations.


What is something you would like to see change in employment contracts?


We would love to see employers be more up front and fair around severance. Often they end up paying more than the Employment Standards Act legally requires, so why not include that in the contract? We would also like to see a limitation of non-compete clauses beyond Ontario, as really, a confidentiality clause and non-solicitation clause should cover what employers need in the vast majority of cases. A non-compete can hurt employees’ ability to get a new job when they often provide little benefit to an employer.


One clause in contracts we would like to see less of are non-disparagement clauses. These essentially mean that no matter what happens, the employee cannot talk negatively about the company. And along those lines, we would like to see the elimination of non-disclosure agreements when it pertains to verbal or sexual harassment. Not being able to talk about your experience for often nominal amounts of money can restrict healing and processing of trauma, and often disproportionately impacts women.


 

If you would like support with employment and human rights law, please reach out to PortaLaw at erin@portalaw.com or paula@portalaw.com. If you would like support in negotiating your compensation and benefits, please reach out to us at The Thoughtful Co at contact@thethoughtfulco.net.