Managing the biggest risk in business today

Woodbridge corporate and securities lawyer, Joseph Chiummiento, of Core Lawyers, provides tips on managing the biggest risk in business – your employees.

When starting or growing your business one of the biggest risks in business can be the employees. A great team will help grow the business while a bad apple in that team will stall it and sometimes reverse the good trends. Understanding the benefits of an employment agreement will help business owners make informed choices and set boundaries for new hires.

Do I need employment agreements for my staff?

Short answer – yes! While it seems very obvious you would be surprised how many small business owners operate and hire employees without employment agreements. This does not mean they will not be successful or are bad people, and usually means they haven’t gotten around to it, don’t have a relationship with a lawyer or feel their personal relationships with new hires is all that is needed.

How can you minimize risks in business with employment agreements?

Sometimes it just happens that a company starts with a small team and everything is hunky dory, and as growth happens the team expands, more people, more management, and more opportunities for issues to arise. The focus is on marketing and sales, sales, sales, then accounting/admin to keep up with sales, sometimes legal falls behind which can be risky. After the first “termination event” or labour board complaint or human rights complaint it can be all too real of a moment leading to lost time, uncertainty and additional or unnecessary litigation expenses. A good employment agreement can help you minimize the chance of litigation.

What are the key elements of an employment agreement?

Some of the key elements of an employment agreement should include:

• Remuneration such as salary, vacation pay, benefits, vacation time, bonuses
• Job Description to set out exactly what the role requires so there are no surprises
• Termination provisions to clarify how they may be terminated or notice if they resign – given the rise in #MeToo and other movements highlight the need for change in workplace culture etc… issues surrounding misconduct, social media posting etc… should be clearly spelled out. Notice requirements in the event of termination.
• Non-Solicit, Non-Compete and/or Non-Service should be considered in order to protect the business once an employee leaves or employment ceases
• Confidentiality & Intelectual Property protections should be a standard every employee is required to adhere to as marketing materials, business plans, inventions, customers etc… are assets of the business.
• Specialty Clauses such as Anti-Corruption or non-disparagement clauses can be used depending on the area or industry sectors being serviced and the types of issues of concern

The most important element of an employment agreement?

One of the most important elements in protecting a business through the use of an employment agreement relates to Notice that a business has to provide to an employee when terminating that employee. Generally there are three types of notice required to be paid to employees upon termination they include:

1. Notice under the legislation, the Employment Standards Act (Ontario) requires that minimum notice is provided to employees such as 1 week per year of service etc… this is a requirement that has to be met and cannot be changed.
2. Notice under Common Law which relates to the notice that is required to be given (or paid) when terminating employees without an employment agreement. Generally, depending on Age, Title, Responsibilities and some other factors businesses can be responsible for up to 1-month of notice per year of service – ie. 10 year employee could require 10 months’ notice when terminating or 10-months pay. This notice is derived by judges over the years as they interpreted the law and dealt with law suits.
3. Notice agreed to in contract – this is simple notice agreed to by the business owner and the new employee and can be as little as 2 weeks up to 24 months depending on the size of the business.

While there is no “perfect” in the hiring process, having an understanding of the above and trying to match an employee’s motivations (ie. time, money or reputation) to the success and vision of the business or its plans for growth can make a tremendous difference. Aligning for success and protecting against a bad apple or someone who is not a “good fit” is possible.

Speak to a lawyer or educate yourself using key online searches would be a good start. If you have any questions or wish to discuss your individual situation please feel free to reach out to me.