tuning up your offer letter

Tuning Up Your Offer Letter

By P.A. Neena Gupta

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Employment Contracts

• Why review your agreements?

• Legislation changes

• Courts interpret provisions

• Your business changes

• Expands to new jurisdictions• Different provinces• Different countries

• Acquires new lines of business or product

• Your employee’s role changes (intern to Vice President)

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Employment Contracts

• Make sure that all relevant legal documents (including offer) signed by employee BEFORE commencement of employment

• Legal terms signed AFTER commencement of employment may not be enforced by courts, unless EMPLOYER can prove FRESH CONSIDERATION (i.e. new benefit to employee)• Promotion• Bonus (not otherwise promised)• Raise• Training • Signing bonus

Obsolescence

• Courts will typically not enforce an agreement where employee’s position has changed substantially• Position• Title• Compensation

• Consider language that specifically deals with obsolescence:• e.g. the terms and conditions of this offer letter shall continue

to govern unless specifically altered in writing and executed on behalf of the Company, regardless of any changes to your job, including, without limitation, job title, job responsibilities, seniority, years of service or compensation.

Obsolescence

• Review contract terms at performance review

• Consider an annual confirmation that despite any compensation, that all other terms and conditions of the offer letter dated _________ remain in full force and effect

• Ensure that all promotions are made subject to a specific offer of promotion with appropriate terms and conditions

• Consider whether additional terms necessary when employees are promoted

• Offer letters are NOT a “one size fits all”

• Software developers, technical professionals and research scientist should be signing • Intellectual Property Agreements

• Assignment of copyright• Waiver of moral rights• Assignment of intellectual property rights• Agreement to cooperate with patent and other IP applications

• Sales people, C-level executives and key employees should be signing• Non-solicitation agreements prohibiting them for seeking

business from clients of Company for a reasonable period of time post-termination

Additional Terms Required

Non-Solicitation Agreements

• Less is more

• 95% is better than 105%

• Length of time• What is a reasonable amount of time for Company to re-

establish relationships between its clients after employee’s departure?

• Can company prove the reason for the need for the length of time?

• Consider sales cycle/complexity of sales process• Industry standard – can be as little as 3 months and as much

as 24 months


• Geographical scope• In what area will the prohibition exist?

• Just because Company has worldwide operations does not mean worldwide prohibition will be enforceable

• Must only extend the area in which employee actually has influence or impact


• Scope of Prohibition

• Be careful what you restrict post-termination

• Should be activity that is specifically detrimental to the Company, i.e. business that Company typically transacts with the client

• This area of law changes rapidly and non-solicitation agreements should be reviewed every 2 years


• Notoriously difficult to enforce

• Consider tying payment of severance payments, deferring bonus or other types of post-termination payments to honouring non-solicitation clauses

Confidentiality

• Although courts recognize importance of confidentiality, don’t always understand WHAT is confidential in your industry

• Consider defining types of documents, information that is confidential in YOUR industry

Business Changes -- Constructive Dismissal

• Contracts can be used against employer

• Job Duties• Location of business • Commission structure

• Include language that makes clear that Company reserves right to make reasonable changes, preferably on notice


Job Duties – Company reserves right to amend, delete, augment job duties, provided such changes are commensurate with the position of _____________ within the industry

You shall work at the Company’s headquarters located at 1 _____ Street, Toronto or such other location in the Greater Toronto Area (define what cities) the Company may designate


Commission – The Company reserves the right to alter, amend, change or eliminate the Commission Plan without notice.

Benefits

• Employee is eligible for benefits, subject to the terms and conditions of any group benefit plan

• Employee is NOT “entitled” to benefits

• Disclose any pre-existing condition exclusions in offer letter or accompanying benefits material

• Make sure HR does not over-promise benefits

Geography Matters

• Be careful of where employee works

• An employee who is transferred to another province or country needs specialized agreements

• Ontario agreement does not work for other provinces

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Geography Matters

• Quebec agreements have to be very carefully drafted

• Different legal system• French language requirements• Different countries have vastly different

expectations

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Common Misapprehensions

• The Employment Standards Act, 2000 provides employers the right to temporarily layoff employees without triggering termination or severance pay obligations

• However, there is no right to layoff at common law

• Put right of layoff in agreement• Otherwise, layoff constitutes constructive

dismissal

Common Misapprehensions

• The Employment Standards Act, 2000 permits a probationary period of 3 months

• Probationary period not implied at common law• A short service employee is entitled to reasonable

notice or pay in lieu • “Probationary employees” have received 4 months

to 9 months of notice upon termination, because of recruitment or other factors

• Include explicit probationary clause in offer

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Termination Clauses

• Ensure clause is carefully drafted• Cannot be less than ESA under any circumstances• Best to use technique such as:

The Company may terminate your employment without just cause upon providing you notice (or compensation in lieu) and severance, if any that is the greater of:(i) your minimum entitlements under the Employment Standards Act, 2000 (“Act”), as it may from time to time be amended; or,(ii) xxxx (your company’s preferred formula)Benefits shall be continued for the period of time prescribed by the Act.

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Boilerplate Matters

• Severability

• If any statute provides greater right or benefit, than employee shall benefit from the statutory rights or benefits in lieu of those provided for in this offer

• Choice of law

• Choice of forum (location of court)

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Boilerplate Matters

• Parole evidence/exclusion of side agreements: this offer supersedes all prior understandings, agreements or representations. You agree that there are no representations, whether in writing or verbal, touching upon the matters relating to this offer or your employment with the Company.

Thank You

montréal · ottawa · toronto · hamilton · waterloo region · calgary · vancouver · beijing · moscow · london

P.A. Neena GuptaGowling Lafleur Henderson LLPBarristers & Solicitors50 Queen Street NorthSuite 1020Kitchener, ON, N2H 6M2Direct Tel: 519.575.6910Direct Fax: 519.571.5001Email: [email protected]