15 April 2016

WHY EMPLOYERS AND EMPLOYEES ALIKE SHOULD AVOID GARBAGE EMPLOYMENT CONTRACTS

Demanding that even lower or mid-level employees sign written employment contracts seems to have become all the rage over the last few years. In the past, such agreements were usually limited to senior managers or executives. 

In theory, there's nothing wrong with employment agreements for everyone at a business if they helpfully clarify the mutual obligations for both parties. Certainly specifying pay levels, hours and duties of work is always helpful in avoiding misunderstandings. But what isn't helpful is inserting abusive and legally defective non-competition clauses that seek to prevent a departing employee from earning a living in his or her field for the foreseeable future. 

I write this as a lawyer who more often acts for employers, rather than employees. I tell my employer clients that it's pointless to pay a lawyer to draft up an employment agreement which no court in Canada will ever enforce because of its abusive terms. 

The difficulty with a lot of these agreements is that the valid clauses state the obvious that doesn't really need to be stated - like don't steal our intellectual property - and the parts that aren't obvious - like you can't effectively work in your field anywhere in Canada (or anywhere within 100km) for the next year (or two years or three years) - are so abusive that they might invalidate the entire agreement, especially if they're combined with other abusive clauses. As an advisor to employers, the last thing a company wants is a court binning the entire agreement. 

For instance, I recently came across an agreement with wording similar to the following: "You agree that during the term of this Agreement and for a period of one (1) [why do lawyers so love to repeat words with numbers?] year after any termination of this Agreement, whether voluntary or involuntary, you will not, directly or indirectly, for your own account or on behalf of any other party, solicit, contact, contract with, supply, provide services for, do business with, or take any other action designed to procure business from any person, business or company who you solicited on behalf of ...., or with whom you did business on behalf of ...."

So what does a clause like that mean? I have no clue, and probably a court won't either. Is it a non-solicitation clause? Is it a non-competition clause? The sentence structure is so tortured, replete with so many commas, it's hard to know what it means. And I do spend a lot of time thinking about these things. Can a new employee really be expected to voluntarily consent to a clause like that in an informed way? 

How about this even more outrageous clause: "You have carefully considered the nature and extent of the restrictions upon you and the rights and remedies conferred upon ... by this Article, and you hereby acknowledge and agree that the same are reasonable in time and territory, are designed to eliminate competition which otherwise would be unfair to ... and are fully required to protect the legitimate interest of ... and do not confer a benefit upon ... disproportionate to the detriment to you." 

Really? The drafting lawyer actually expected a reviewing court to buy that "carefully considered" crap? This clause seems to suggest the earlier clause really is a non-compete, and not a non-solicitation. And how are we to believe that a little competition would be "unfair"?

You sell a business to someone for a million dollars, it's an agreement between equals. And it's completely fair for the buyer to demand a non-compete for a set time and territory to ensure you won't simply set up the same business across the street. 

Occasionally senior executives execute non-compete clauses in exchange for multi-million dollar golden parachutes. Nothing wrong with that. 

But to say to a mid-level employee: "we can fire you any time we like, and you won't be able to work for anyone else in your field," is ridiculous. 

I'll give you one last example of the most ridiculous, wordy clause of all: "You agree that the remedy at law for your breach of the foregoing provisions will be inadequate, and ... shall be entitled to both temporary and permanent injunctive relief (without notice or bond) enforcing such provisions, in additional to any other remedy it may have at law or in equity."

What does this mean? That they can throw you in jail for earning a living? Take away your birthday? And not give you notice of doing so? 

The moral here is for employers to closely question their lawyers when they ask for employment agreements to be drafted. Can you guarantee me that a court will uphold this agreement? If you have doubts, why? Are there ways we can improve our agreements that will make them more defensible, and easier to enforce, in court. 

The message for employees is that I know you're going to keep signing these kinds of abusive agreements because you need a job. Take some comfort in the fact that the more abusive the agreement, the more impossible it will be to enforce late. But do get some legal advice before you part ways with your employer, in case there is a chance some of the agreement might stick. 

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