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What does an employment contract do?
What does an employment contract do?

How employment contracts help employers

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Written by goHeather
Updated over a week ago

goHeather automates employment contracts. But you may ask yourself, what exactly does an employment contract do?

What an employment contract does

Primarily, employment contracts limit an employer’s legal liability. Employment contracts limit liability by contracting out of common law entitlements employees would normally possess but for an employment contract. For example, in Canada, by default, employees are entitled to common law reasonable notice of termination. However, employers can remove their employee’s default entitlement to common law reasonable notice of termination by providing them with an employment contract at the time of hire that contains a termination clause promising something less than common law reasonable notice. The termination clause is usually the most key term in an employment contract because the difference in severance between common law and a contracted minimum standard amount for severance can be up to around twenty months’ pay.

goHeather’s employment contracts contain a termination clause with options to provide employees with minimum by law notice of termination or a formula for some other amount. goHeather also has more clauses that contract out of the common law, for example, a resignation clause and temporary layoff clause, among others.

Secondarily, employment contracts spell out the expectations of the parties vis-à-vis variable work and compensation issues, like pay, bonuses, policies, and restrictive covenants. For example, if you want to help protect the IP your employee creates, you should use an employment contract with an IP clause. Likewise, if you want to prevent your employee from jump-starting their own business by soliciting your customers, you should use an employment contract with a non-solicitation clause. goHeather contracts contain various optional terms, conditions, policies and covenants employers ought to set out with their employees up front, for example, a confidentiality clause, among others, including all of the above-noted clauses.

Thirdly, employment contracts help define what is what in case an employee sues the employer for some employment law issue. For example, if the employee sues for an unpaid discretionary bonus, the employer can point to the employment contract and argue that the bonus did not need to be paid as per the language of the bonus clause in the employment contract. This way it's not a “he said, she said” in court. The employment contract will help resolve the ambiguities.

In conclusion, you should know that, essentially, employment contracts are used to limit liability, to set out the key terms of employment at the beginning of the relationship and to help employers defend themselves in case there is ever an issue with respect to something the employee argues the employer promised but failed to deliver.

What does it mean to limit liability?

Employment contracts are not insurance policies. They don’t insulate or indemnify an employer from absolute legal liability. Rather, employment contracts lower the amount of liability an employer has. For example, a well-drafted employment contract, like goHeather’s employment contracts, can make it cheaper to terminate an employee, but they don’t make it free to terminate an employee. None of goHeather’s employment contracts provides for anything less than minimum employment standards. A contract won’t help an employer pay employee wages or damages it owes to an employee. Of course, the employer still has the duty to pay the employee, for example, even if there is an employment contract. Instead, the employment contract is there to help define (and lessen) what the employer owes the employee.

📃 Make your own employment contract using goHeather here.

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