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How Spending $1,000.00 Could Get You $35,000.00
I am always shocked by the number of smart, sophisticated professionals who sign an employment contract without first obtaining full knowledge of what they are signing. These people are often surprised (typically after they have been terminated from their job) that their contract significantly limits their ability to endure a period of unemployment. Don’t let this happen to you!
In this article, I discuss the top 5 reasons you should review your new employment contract with an employment/human resources lawyer.
#1 – Your Contract May Contain a Number of Post-Employment Restrictions
Most employment contracts contain a number of clauses that seek to limit your new employer’s legal obligations to you or your job search activities when the employment relationship ends. Termination, non-solicitation, and non-competition clauses can serve as major restrictions when you become unemployed. You may think that these clauses don’t apply to you, even if they are in your contract. This is not necessarily true. You can never know for sure unless you speak to a qualified lawyer who can advise you appropriately. Recognize that your new employer has hired lawyers and gone to great lengths to ensure that the employment contract best protects their needs and business. In light of this, shouldn’t you clearly understand your rights and obligations, and look out for your own needs?
#2 – Failure to Review Your Employment Contract Could Cost You Money
By far, the contract clause that has the most potential to negatively impact an employee is the termination clause. In many employment contracts, the termination clause seeks to limit an employee’s severance package entitlements to the minimum standards established by statutory laws. For provincially regulated employees, this works out to be 1 to 2 weeks of earnings for each completed year of service, while federally regulated employees often get much less. For most professional employees, this is not enough financial security to address a period of unemployment.
I recently consulted with a senior level marketing employee who was making $95,000 per year and lost her job one-month short of 3 years of service. Prior to starting the job, she had signed a contract with a termination clause that limited her termination entitlements to the Employment Standards Act. As a result, when her employment was terminated, she received 2 weeks of earnings ($3,654), 2 weeks of benefits and nothing else. Were it not for the termination clause, this employee could have minimally received 4 to 5 months’ worth of her earnings ($31,058 to $40,190) and benefits.
If you were unemployed and seeking a new job, wouldn’t you rather have 4 months of salary and benefit protection as a ‘runway’ for you and your family, rather than 2 weeks? Sadly, there was nothing I could do to assist this employee: she had no legal footing and I did not want her to spend the bulk of her severance package hiring me when she had a limited likelihood of success.
#3 – Your Will Be Locked-In To the Contract
People often come to understand their employment contract AFTER their employment has ended, either because they wish to obtain a greater severance package (like the example above) or because they have been served with a ‘cease and desist’ letter from their former employer because of something they have done (or failed to do). It is common to hear: “I didn’t know what I was signing” or “I felt pressured to sign the contract for fear of losing the job opportunity.” Although these reasons may be personally relevant, legally they are of no significance.
Canadian laws would be chaotic if everyone who regretted their signed contract were able to get out of performance because they did not take time to understand what they were signing. Though courts are sympathetic to employees, they do hold employees accountable for their actions and choices around signed contracts, especially if the employee was given an opportunity to review and understand the contract. Further, most employment contracts contain clauses that state that the employee understands the contract, has obtained legal advice with respect to the contract (or chosen not to) and is signing of their own free will. If you are able to read and understand an article such as this, and you have signed an employment contract, chances are that you will be bound by what you have signed.
#4 – You Won’t Risk Your Potential New Job
One common fear that stops many people from understanding and negotiating a contract is the fear that they will risk losing the job or be seen as ‘demanding’. In my experience, this fear is unfounded. First, many employers provide employment contracts with the expectation that an employee will negotiate some aspect of the contract. Second, when you negotiate your contract, you will be negotiating with a representative of the new employer. This person is also an employee, and if in your shoes, would probably seek similar protections and assurances. He or she will not take offence to requests for reasonable changes. And if they do, it says a lot about the organization you are soon to join. Do you want to work for a company where employees who advocate for themselves are penalized?
It is highly unlikely that an employer will withdraw a job offer simply because a potential new employee chose to negotiate a better employment contract. Therefore, you should never be afraid to review your contract, be fully informed, and negotiate any reasonable changes. The worst that will happen is that your future employer will not agree to your proposed changes. Even if they refuse your changes, at least you are entering the employment relationship with a firm understanding of your rights and obligations, and with a better chance to plan against and mitigate any negative impacts that may result from the contract.
#5 – You Could Pay 5x More in Legal Fees to Fight the Contract
The last common objection people have when it comes to reviewing their contract with an employment/human resource lawyer is the cost. I am surprised by how many people hesitate at the thought of paying $1,000 or less to review an employment contract, only to end up paying 3 to 5 times that amount to negotiate a severance package or have a lawyer respond to a cease and desist letter.
Prevention is always less expensive than the cure, and it is always best to think about what you are preventing by reviewing your employment contract. What would many more months of salary, bonus and benefits be worth to you should you lose your job? Do you value the freedom to accept new employment of your choosing when you resign or are terminated? What price do you place on your financial security and that of your family should you become unemployed?
Your employment contract is more than a summary of your job title/description, compensation and benefits. It is a legal document: a contract with your employer carefully designed to protect your employer’s best interest. By signing the contract, you are trading away some of your rights and assuming some obligations. Therefore, before you sign your next employment contract, consult with an employment/human resources lawyer so you can enter your new working relationship with your eyes fully open and equipped with the knowledge necessary to protect your best interests.
Advocation clients who have hired us to negotiate a better severance package are entitled to a 25% discount on our service fees to review their next Employment Contract!