It’s not a good idea for a general manager to draw up his own contract with significantly better terms than those of other employees

What are your terms?

That’s a question that can be asked during negotiations for a fixed-term employment contract. Such contracts have their advantages and disadvantages for employers, so language and the various provisions that can be included can often lead to extensive negotiations. Fixed-term contracts can lock in an employee for a certain amount of time and for a certain amount of guaranteed pay — depending on what type of termination clause may or may not be included — but they can also help an employer secure the talent it needs and bring a known amount of fixed costs to its business.

When deciphering a contract and to what obligations it holds both the employer and the employee, it’s not just the language of the contract that is important to consider. If the contract is challenged, a court is going to look at what the contract indicates was the parties’ intentions, as well as the circumstances under which it was signed.

Duress is not a good situation for one side to sign — this often comes up when an employee is required to sign a new contract or a release without being given time to seek legal advice or review it — nor is any potential conflict of interest. And it’s probably a good idea to avoid having employees draw up their own contracts.

Take the First Nations casino in Ontario that rehired an employee who had been previously fired, as the casino general manager. A few months after being rehired, the employee told the casino board of directors — that included his father, a friend of his father’s, and a former employee of his father’s — that all casino workers should have employment contracts. The board agreed and allowed the employee to draw up contracts for everyone.

However, there was a bit of a discrepancy between the employee’s contract and everyone else’s — the standard contract was for one or two years, with the exception of the operational manager, who was given a five-year term, and contained a termination clause that limited notice entitlement for without-cause dismissal to statutory minimums. However, the employee drew up for himself a seven-year contract that stipulated that if the employee was dismissed without cause, he would be owed compensation for the balance of the contract.

The following year, a new board of directors came in. They weren’t made aware of the employee’s contract until two years later, when they tried to terminate his employment. The employee thought this would be a good time to inform them of his contract and demanded payment for the balance of the contract, which didn’t expire for another four years-plus.

A court determined the employee had a conflict of interest when he drew up his own employment contract and breached his fiduciary duty to act in the casino’s best interests — making the contract unenforceable. As a result, the contract was unenforceable and the employee was only entitled to normal common law notice of dismissal: See Waddilove v. 1748960 Ontario Limited, 2018 CarswellOnt 564 (Ont. S.C.J.).

It may be nice if your terms are met on an employment contract, but it’s not much good if you give them to yourself — though the negotiations may be short. A conflict of interest generally means a conflict in validity for the contract, making it not worth the paper it might be printed on.

Originally posted on by Jeffrey R. Smith

Published on March 20, 2018