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Employment contracts can limit wrongful dismissal awards

Posted by on Feb 13, 2013 in HR Issues, Legal, Toronto Star | 0 comments

   By: Personal Finance Blogger, Published on Tue Feb 05 2013

Damages awarded to wrongfully dismissed, non-union employees have been inching upwards over the last several years somore companies are requiring all new hires to sign employment contracts limiting payouts if they are fired.

If you are dismissed without cause, you are entitled to a minimum of one week per year of service to a maximum of eight weeks, under the Employment Standards Ac. Additional severance to a maximum of 26 weeks may also be payable in certain circumstances.

But to get more than the statutory minimums, you have to sue your former employer. If you are successful, what you get is based on your age, length of service, type of employment and availability of a similar job. For long service employees awards of 24 months pay or more are not unusual.

For example, all new employees of the Mississauga Golf and Country Club must sign an employment contract which includes a termination clause limiting payouts on dismissal. The amount of notice varies by position but in most cases is limited to minimum statutory requirements.

“It’s an industry best practice,” says human resources manager Sarah Paul. We want to be fair to our employees, but it’s also important to minimize legal risk to the Club.

Patrizia Piccolo, a partner in the Mississauga law firm of Keyser Mason Ball acts for both employers and employees. She says if you are offered a job contingent on signing an employment contract, it will likely include some of the following provisions:

Limitation of damages: Some employment contracts will limit the employer’s obligation to pay a fired employee to the maximum amount required by the ESA. In other cases there will be a formula that is not as high as a court may order, but more generous than the legislation. An example might be two weeks pay for each year of service.

Benefits: Your employer must continue employee benefits like life insurance, health insurance and disability insurance to the end of the ESA notice period but may exclude group benefits coverage for any remaining common law notice period.

Duty to mitigate: Even if the employment contract guarantees more than the ESA maximum, the contract will likely require that you mitigate your damages by looking for another job. If you find a job before all of the agreed upon amount is paid out, the contract may stipulate that the all or part of the amount you are entitled to for the balance of the common law notice period will be reduced.

Non-solicitation clause: Depending on the nature of your job (for example, sales), the contract may specify that you cannot solicit business from a client of your former employer for a limited period within a particular geographic area.

Change in title/salary: To ensureany raises or promotions over the years do not invalidate the contract, there may be a clause stating that in these circumstances, all other terms of the employment contract will still continue.

In order to be enforceable, an employment contract must be signed before you start work. Furthermore, in cases where an employer treats employees badly, a judge or jury may decide to ignore terms of the contract limiting damage awards. For example, a jury recently awarded a mistreated WalMart employee $1.46 million.

While it may seem awkward to try and negotiate what you are entitled to if you are fired before you even get the job, Piccolo says that if your skills are in demand, it’s worth trying to get a better deal up front.

She also advises employees to get legal advice before signing an employment contract. “I’ve had a number of mid-level or senior employees who in hindsight looked at the employment agreement and said they are sorry they didn’t fully understand the implications of the document before they signed it.”


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