Timing is Everything: Ensuring your Employment Agreements are Enforceable
Most employers know the value of having written employment agreements in place for their non-union or excluded employees, particularly when it comes to setting out obligations relating to termination. However, the timing of when a contract is signed can make all the difference to whether it is legally binding and you can rely on its terms, or whether common law principles apply instead.
The concept behind this issue is that in order to create an enforceable agreement, both contracting parties must give something up and receive some kind of benefit in return (referred to as “consideration”). The law considers employees without a written contract to have a bundle of certain implied rights when the employment relationship starts, including, and perhaps most importantly, a right to common law reasonable notice on termination of employment. Employers and workers are free to amend these rights with a written employment agreement; however, if that agreement is entered into after the employee starts work the employer must provide fresh “consideration” in exchange for the employee giving up their implied rights.
To avoid potential unenforceability, it is always best practice to provide an agreement to a new hire and have them sign – and return it — in advance of their first day of work. But if this fails to happen, there are still ways ensure your contract is legally binding.
If the employee does not sign the agreement before starting work but they received it along with their offer letter, it can usually be assumed that the employee has had sufficient notice of the terms and conditions set out in the contract and, as a result, enforceability will not be an issue. In this circumstance, a paper trail that shows the employee received the agreement when the job was offered will be critical.
Employees who are presented with agreements for the first time after they have started working will need to be given fresh consideration, even if they sign the contract on their first day on the job. If the employee has just started working, then a modest signing bonus or perk (such as an extra vacation day) should be sufficient.
For employers seeking to introduce an agreement mid-stream in an employment relationship, promotions and compensation increases (provided they are not standard, lock-step increases) provide ideal opportunities to do so as they offer built-in consideration. However, to ensure the contract is enforceable it should be presented in conjunction with the promotion or raise, and signed before the change takes effect.
Whenever new consideration is being given, it is always helpful to add a specific reference that describes the bonus or benefit in the contract itself. This reference can be invaluable in establishing enforceability if the agreement is challenged in the future.
Lessons for employers:
Following these steps will help ensure your employment agreements are enforceable and that you can rely on their terms:
- Give new hires the complete employment agreement along with the offer letter, and keep a record of the email in which you sent the documents.
- Have new hires sign, date and return agreements prior to their start dates.
- If you cannot provide the agreement with the offer letter, make sure the offer clearly states that employment will be subject to the terms and conditions of the employment agreement, and then follow up with the agreement as soon as possible.
- If the employee starts working without having returned the signed agreement but received it before he or she started, you likely do not need to provide additional consideration.
- If you did not provide the employment agreement to the new hire before he or she started, have the employee sign it as soon as possible and provide new consideration (signing bonus, benefit, perk).
- Promotions and raises are ideal times to introduce an agreement mid-stream in employment, however make sure you provide the agreement and have the employee sign it prior to the promotion or compensation change coming into effect.
- Include a specific reference to the consideration being provided in the employment agreement to avoid confusion and strengthen your position on enforceability in the future.