Employment Contracts – Time Is Not On Your Side

Many employers believe that an employment contract is an effective way to limit the amount of notice or pay in lieu of notice that an employer must provide an employee upon the termination of the employment relationship. In many cases, a properly drafted employment agreement can do just that. However, in others, the contract will fail, and the employer will be obliged pay the much higher amount of pay in lieu of notice that is typically awarded at common law.

There are many reasons why an employment contract might fail. One of the most overlooked reasons is the age of the agreement. Unlike a fine wine, an employment contract does not get better with age. Even an otherwise properly drafted employment contract may fail if a sufficient amount of time has passed between the date the contract was prepared and signed and the date upon which the employee is terminated. Where the nature of the employee’s position has significantly changed over the years following the execution of the employment agreement, the substratum of the written contract may be found to have disappeared, causing the contract to have no application.

Such was the case in the Court of Appeal decision of Irrcher v. M.I. Developments Inc.In that case, the Court found that there had been a fundamental change in the nature of the job between the date of the written employment contract and the date of termination. The Court noted that the employee’s responsibilities were dramatically different, the amount of remuneration was much greater, the method of remuneration had changed, and that even the employee’s title was no longer the same. In the words of the Court, the employee’s position at the time of termination “was simply not the same job [as it was when the written contract was entered]”.

As a result of the Irrcher decision and similar cases, employers would be wise to periodically, and at any time there is a significant change in circumstances, consult with their legal counsel with respect to the possible need to update their employment contract(s). An employer should generally not attempt to update a contract without obtaining legal advice, as it may unwittingly cause the updated contract to fail for a variety of reasons, including, among others, failing to provide fresh consideration to the employee to reflect the change or update.