3 Pitfalls of Not Having a Written Employment Contract

Employers frequently ask if it’s important to have a formal written employment contract. They’re often surprised to find out that they already have one, regardless of whether it’s been put into writing.

These contracts govern the relationship between employers and employees. Leaving it unwritten leads to more uncertainty and ambiguity, which works against employers in most cases. Here are three costly pitfalls that employers may encounter by not having a written employment contract and some benefits that come with having one.

1. Termination of a Written Employment Contract

A common stressor for many employers is whether they’ll have to pay an employee a lot of money after termination. But, having a written employment contract limits and defines the notice that a departing employee will be entitled to upon termination.

These written agreements can limit termination to statutory notice under the Employment Standards ACT (ESA), which only requires the employer to provide one week per year of service, up to eight weeks. Also, a contract’s termination provisions can set notice parameters and control this business expense.

Conversely, without a written employment contract, employers in BC who want to terminate an employee on a “without cause” basis must provide them with reasonable notice or pay-in-lieu thereof. Generally, the rule for reasonable notice is one month per year of service, up to 24 months. 

Suppose a contract isn’t put in writing, silent on the issue, or attempts to breach the minimum statutory entitlement in the ESA. In that case, entitlement defaults to the much more generous common law notice.

2. Changing Working Conditions

Business needs are constantly changing. After hiring a new employee, different needs may arise. So, many employers respond by modifying existing duties, varying compensation, or reassigning employees to new positions.

Employers may also wish to create new policies that weren’t discussed at the outset of the employment relationship. In some cases, employees resist these workplace changes.

In the absence of a written employment contract that allows the employer to make such changes, employees may be entitled to refuse them and sue their employer for constructive dismissal claim. This means that the employer may be forced to pay wrongful dismissal damages.

A well-constructed written employment contract that allows for such changes is a valuable tool to avoid such a claim or to defend from one if it arises.

3. Restrictive Covenants

Do you ever worry that a key employee will take your fantastic idea, leave, and start to compete against you? What about if an employee leaves and takes your customers with them? Or when you discover a departing employee spreading your trade secrets around town?

Unfortunately, these things do happen. But having a written employment contract improves your ability to respond to these damaging situations.

Contracts can provide the protection required to take effective action if faced with one of these scenarios. Their provisions can take various forms, such as non-competition, non-solicitation, and confidentiality clauses. But, employers must carefully draft restrictive covenants as they’re often struck down by courts that weigh the restrictive provisions against an employee’s right to earn a living.

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