Why Incorporate?

A common question asked by entrepreneurs starting a business is “Should I incorporate?” The most common answer is: “It depends”.

A business is owned either as a proprietorship, a partnership, or a corporation.

Proprietorship

A business owned by one individual (a “sole proprietor”) is a proprietorship. This is the simplest form of business structure, as it may only require a municipal business license and the registration of the business name (unless it is the proprietor’s own name) with the provincial government (this does not protect the name!). The proprietor is personally responsible for all of the liabilities of the business, and all of the income and assets of the business belong to the proprietor.


Partnership

If a business is owned by more than one individual it is a partnership. Partners are personally and jointly responsible for the debts of the business, and any partner can create a binding obligation of the business. Profits and losses are shared equally, unless otherwise agreed. Losses can be deducted from the personal taxable income of the partners. Partnerships for “trading, manufacturing or mining” are required to register with the provincial government under the Partnership Act.


Limited Partnership

A “limited partnership” is a special type of partnership often used to raise money because investors, as limited partners, are responsible for the liabilities of the partnership only up to the amount of money or property they contributed to the partnership (unlike a regular partnership where every partner is personally responsible for the full amount of the partnership’s liabilities). A limited partnership is created only after extensive information is filed with the provincial government.

Corporations

Incorporation is the act that creates an entity known as a corporation, or limited company (the term “company” usually means a for-profit corporation, while the term “corporation” includes other types of legal entities, including non-profit societies).

A company is owned by its shareholders and managed by its directors and officers. It is possible, and very common, for one person to be the sole shareholder, director and officer.

The benefits of incorporating your business include:

1) Limited Liability

One of the most important benefits of incorporation is limited liability. If you incorporate your business, your company is responsible for the debts and obligations of the business. As a shareholder, you are not personally responsible if your company cannot pay its debts or is sued by a customer.

However, if you signed a personal guarantee of the company’s lease, bank loan, or other indebtedness, you will lose this benefit for those obligations. Further, a judge may strip away the limited liability protection (called “lifting the corporate veil”) if you do not treat the company as a separate entity, or do not observe certain legal formalities such as documenting annual meetings. In addition, if you are a director of the company, you can be personally responsible for unpaid wages, GST, payroll deductions, WCB assessments and other amounts.

2) Tax Advantages

Corporate tax rates are generally lower than personal tax rates. Most privately held companies earning active business income will pay tax of approximately 13.5% on the first $500,000 of taxable income compared to over 40% if the income was earned by an individual in the top marginal tax bracket. It is important to note that this is for the most part only a tax deferral. You will pay taxes at the personal tax rates when you take money out of the corporation.

A company allows for maximum flexibility in tax planning. For example, you can decide when to pay dividends to the shareholders, and which shareholders will receive dividends. As well, the $800,000 capital gains exemption on the sale of a small business is only available on the sale of shares of a qualifying company and not on the sale of a proprietorship or partnership. If the shares qualify for the exemption, the first $800,000 of capital gains is exempt from tax.

3) Access to Capital

Proprietorships and partnerships can only raise capital by borrowing, from themselves or others. A company can raise capital by those methods, but also by selling shares. Although this involves giving up some ownership of the company, shares offered to investors (including employees) can be tailored so that you maintain control of the company. You may not sell shares to the public unless you file a prospectus or offering memorandum with the B.C. Securities Commission.

In addition to having more options for raising capital, companies may have an easier time raising capital because they are often seen by investors and lenders as having more credibility.

4) Perpetual Existence

Unlike a proprietorship or partnership, a company does not cease to exist on the death of its owner(s). Instead, it continues to live on, with ownership transferred to the shareholders’ heirs. Many Canadian companies are well over 100 years old. The ability for a company to continue beyond the life of its owners can give a business greater stability, allowing it to plan over a longer term and have easier access to capital.


Disadvantages of Incorporation

If you are starting a business, it might not be a good tax strategy to incorporate right away. If your business loses money in the first few years, you can use your losses to offset your other income or even recover personal income taxes paid in previous years. On the other hand, if you incorporate your business the losses stay in the company where they can only offset the corporation’s future profits. If the company is never profitable you will miss the chance to deduct the losses.

Incorporation also involves extra legal and accounting costs, although the lower corporate tax rates and greater ability to raise capital may offset these costs.

Canada v. B.C.

If you do choose to incorporate your business, the next decision is to choose the jurisdiction of incorporation. The vast majority of B.C. companies are incorporated under provincial jurisdiction, but with the growth of the online economy and “globalization”, more and more entrepreneurs choose to incorporate federally. Each jurisdiction has its pros and cons.

Heightened Name Protection for Federal Corporations

One of the most common reasons for choosing to incorporate federally is the increased name protection given to federal corporations. While all provincial jurisdictions screen potential corporate names, Corporations Canada applies the most stringent tests before granting the right to use a name. This guarantees that, once incorporated, the name has a protected status second only to trade-mark protection.

Extraprovincial Registration

Whether you have a federal or a B.C. company, it must be registered in each province in which it carries on business. This means that a federal company that operates in B.C. must incur the extra expense of registering in B.C. On the other hand, a federally incorporated company has the constitutional right to carry on business anywhere in Canada under its own name. A B.C. company does not have this right. If a B.C. company wants to expand to another province and another company with a similar name already exists in that province, the B.C. company will have to register in that province under a different name.

If you are considering opening a business, or have already done so, call us to discuss your options.

Power of Attorney Deadline Extended

Thanks to a recent announcement by the Attorney General, British Columbians will have another year to make enduring Powers of Attorney.

A Power of Attorney is a legal document that allows you to appoint another person, called an “attorney”, to manage your legal and financial affairs. (“Attorney” in this case does not mean a lawyer as they are referred to in the USA, but is simply the person to whom you grant the power of attorney)

A regular Power of Attorney automatically becomes void if you become incapable unless you have added a special clause to the Power of Attorney. An Enduring Power of Attorney contains a statement to the effect that the attorney may continue to act on your behalf if you become mentally incapable. It has been a valuable tool for disability planning.

The B.C. government had hoped to phase out the creation of new enduring powers of attorney by September 2000, replacing them with the new Representation Agreements which are more complex legal documents that also allow you to appoint a representative to manage your legal and financial affairs, but also to make health and personal care decisions for you in the same document. Unfortunately, because of their complexity, the new Representation Agreements have been costing our clients a great deal more than the old Powers of Attorney.

The extension means that new Enduring Powers of Attorney can be made until September 2001. Given the greater simplicity and familiarity of Powers of Attorney, we recommend that, before next September, clients consider making an Enduring Power of Attorney for financial matters and a separate simple Representation Agreement for health and personal care. Please call us at your convenience for more information.

Note: Another extension was announced in 2001, extending the deadline to September 2002.

Homeowners Ordered to Remove Suite

A B.C. couple that excavated their crawl space and converted it into a secondary suite, in violation of a municipal bylaw, was recently ordered to restore their home to its original condition.

In 1994 the couple built a two-storey house with a crawl space on a lot they owned in Burnaby. The lot was zoned for single-family homes with a maximum floor area of 2,400 square feet. The house built on the lot was just under the maximum permitted floor area. In 1995 the owners excavated part of the crawl space for a suite, resulting in the floor to ceiling height being increased from 4 feet to 8 feet, and increasing the floor area of the home by about 700 square feet.

After the City found out about the excavation, the owners applied for a building permit, which was refused. An application for a variance was also refused, and in 1997 the city began legal action against the owners to force them to restore the crawl space. The trial judge found in favour of the City. The owners appealed to the B.C. Court of Appeal.

The owners’ main defence was that the City didn’t prosecute thousands of owners of illegal suites, but only those that it received a complaint about. They argued that by ignoring the other illegal suites and proceeding only against the defendants because a complaint was received, the City was violating their right to equality under the Charter of Rights.

In essence the defendants’ position was that the City should not be permitted to enforce its bylaws unless it had a system in place for enforcing all breaches of its bylaws.

The Court of Appeal dismissed this argument, comparing it to a motorist ticketed for speeding arguing that the ticket should be ruled invalid because other motorists have driven over the speed limit without being issued tickets.

Finally, the court refused to exercise its discretion to refuse to make the order. Restoring the crawl space would require the defendants to spend a considerable sum of money. The court weighed the public interest of enforcing the bylaw against the hardship the order would impose on the defendants.

Given that the defendants knowingly and deliberately flouted the bylaw for their own benefit, the court ordered that they restore the crawl space to its original condition. This case illustrates the danger for homeowners who attempt to circumvent local bylaws. The courts may not be sympathetic to them if they are prosecuted.

New Condo Legislation In Force

A new act has replaced the Condominium Act as the primary legislation covering the development and governance of condominiums in B.C. The Strata Property Act, along with its amendments, regulations and forms, came into force on July 1, 2000. The new Act applies to all condominiums, both new and existing.

The responsibilities of the owner developer in the initial stages of the strata corporation have been expanded and clarified. For example, developers will be required to:

  • act in the best interests of the strata corporation
  • contribute start-up money to the contingency reserve fund
  • provide more comprehensive documents to the strata corporation, including “as-built” plans and warranties
  • compensate strata corporations for serious under-estimation of expenses, and for failure to call the first meeting or to transfer documents to the strata corporation.

Rules of governance and procedure for the strata corporation have been enhanced and clarified. Many of these provisions have been moved from the bylaws to the body of the Act to ensure that they will not be changed.

The creation and enforcement of bylaws is substantially the same. Some of the key provisions regarding bylaws include the following:

  • Owners must ratify new rules at a general meeting
  • The Act does not prohibit age restriction bylaws
  • New age and pet bylaws will not apply to currently resident persons and pets
  • New procedures for bylaw enforcement include giving persons against whom a complaint has been made a hearing before imposing any penalty
  • The Act makes tenants responsible for complying with the bylaws, and makes landlords responsible for disclosing the bylaws to tenants.

The bylaws of existing strata corporations will remain in force until January 1, 2002, when they will be replaced by a new set of Standard Bylaws. However, the Standard Bylaws will not affect any bylaws that have been filed at the Land Title Office, except to the extent that the filed bylaws do not comply with the Act..

Condominium rentals are often a cause of dispute. The new Act maintains and clarifies a strata corporation’s ability to pass bylaws limiting or prohibiting the rental of strata lots. However, rental restriction bylaws will not apply to family members, and owners will have one year to comply with any new rental restriction bylaw.

If you would like more information or have any questions about this new legislation, please call us.

More information is also available at http://www.fin.gov.bc.ca/strata.htm

Adult Guardianship Law Overhauled

Adult guardianship legislation that was pending for years came into force on February 28, 2000. The legislation gives adults more power to determine their future and provides more support and protection for those who are vulnerable to abuse or no longer capable of making their own decisions.

Four acts make up the adult guardianship legislation. They are summarized below:

Representation Agreement Act
The Representation Agreement Act allows adults to make representation agreements permitting a representative to make important life decisions. Representatives can be given authority to make decisions about personal care, health care, and legal and financial affairs, should the adult become mentally incapable. A monitor can be named to oversee the activities of the representative.

A representation agreement can be customized. Simple agreements authorizing a representative to look after routine financial affairs may be completed and signed without the involvement of a lawyer. Agreements containing specific and more complex decisions (for example, authorizing a representative to refuse to consent to life support treatment or to manage a business) will require prior consultation with a lawyer or qualified paralegal.

Representation agreements will replace enduring powers of attorney. Existing enduring powers of attorney will remain valid, but these only authorize a person to manage someone else’s financial affairs; they do not authorize people to make health or personal care decisions. It will not be possible to make enduring powers of attorney after September 5, 2000, when section 8 of the Power of Attorney Act will be repealed (this date has been extended to September 5, 2001). Ordinary (or commercial) powers of attorney can still be made, but they become void if the person becomes mentally incapable.

Representation agreements will provide a type of “living will”. Some people have prepared living wills to express their wishes regarding life support and health care should they not be able to communicate their wishes at the time, but such documents were not legally effective in B.C.

Adult Guardianship Act
The Adult Guardianship Act promotes the coordination of support and assistance for abused or neglected adults. It authorizes the Public Trustee to designate various agencies to receive reports about, and arrange assistance for, such persons. These agencies also have the power to undertake comprehensive inquiries after receiving a report.

Provisions of the Adult Guardianship Act dealing with court ordered decision-making will not come into force at this time. As a result, the Patients Property Act will remain in force, which provides for the court ordered appointment of a committee for someone who is incapable.

Health Care (Consent) and Care Facility (Admission) Act
The health care consent provisions of this act confirm existing common law and customary practices concerning health care decision-making. The act confirms an adult’s right to refuse to consent to health care on moral, religious or other grounds regardless of the consequences.

It also sets out:
· The circumstances under which health care can be provided without consent (for example, in emergencies when the patient is incapable of making a decision)
· The rules for obtaining consent
· The procedure for obtaining consent from a patient’s family when the patient is incapable and no representative has been appointed.

Public Guardian and Trustee Act
This act changed the name “Public Trustee” to “Public Guardian and Trustee”, and created an advisory board and new investment powers for the Public Guardian and Trustee. It also clarified and improved the ability of the Public Guardian and Trustee to deal with cases where individuals are financially abused.

These four acts were passed in 1993 but not proclaimed because they would have cost the government $12 million a year to implement and administer. After years of review and consultation, the legislation has been substantially pared down and will cost about $2.8 million a year to administer.

SWEETHEART STRATA DEAL UNSWEETENED

A B.C. Supreme Court judge recently ruled that the developer of a strata-titled development had an obligation not to put its interests ahead of the interests of future owners.

The developer had agreed to give the first purchaser in the development an exclusive 99-year lease of a rooftop patio owned by the strata corporation. Since the developer owned all of the strata lots, it entered into the lease on the strata corporation’s behalf. The lease provided that no rent was payable to the strata corporation, and that the strata corporation would pay for all maintenance and repair costs. The purchaser would not have purchased the strata lot if the developer had not included the lease of the patio.

Subsequent purchasers were aware of the lease and there were no complaints about it until 11 years later, when a new owner convinced the strata corporation to pass a bylaw making the first purchaser responsible for all of the costs of the leased patio area. 

The first purchaser brought an action against the strata corporation for a declaration that the bylaw was unenforceable because it violated the lease. However, the judge ruled that the lease was void because it was not in the best interest of all of the owners. Because strata corporations have a duty under the Strata Property Act to manage common property for the benefit of all owners, developers are not permitted to use their initial control of the strata corporation to benefit themselves at the expense of future owners.

Living Wills

Thanks to the adult guardianship legislation that became law on February 28, 2000, “living wills” are now legally valid in BC. A living will is a written statement that expresses your wishes regarding medical treatment and personal care in case you are unable to express your wishes at the relevant time. Living wills are also referred to as advance directives, health care authorizations or declarations of belief.

A living will specifies the treatments that should or should not be given in specified circumstances. For example, many living wills provide that “heroic measures”, such as cardiopulmonary resuscitation (CPR), should not be used to prolong life if the person suffers from a severe irreversible condition. However, it may direct that medication be administered to alleviate suffering in those circumstances.

Living wills can prevent conflict and guilt among family members. If family members ask the doctors to do “everything” to keep a loved one alive and that person dies, the family may feel guilt for putting the person through needless tests and treatments. On the other hand, if they let their loved one “die with dignity”, they may feel later that they should have done more.

Conflict can also arise if family members cannot agree. Children who have been out of contact for years may return and want the doctors to do “everything” to try to bring a parent back so they can make peace. Other family members who remained in close contact are more likely to accept the person’s death, and want only palliative care for the parent. Further complications can arise when children from divorced marriages resent stepparents or common law spouses from making decisions. These conflicts can leave lasting bitterness.

If you have stated your wishes clearly in a living will, your doctor and family won’t have to second-guess what kind of treatment you would want. You will receive the treatment you want and your family will be “off the hook”.

Under the new Representation Agreement Act, you may make a Representation Agreement authorizing a representative to give consent or refuse consent to specified kinds of health care, including life-supporting care. This authorization is valid only if you consult with a lawyer before making the Representation Agreement, and the lawyer completes a certificate to that effect. (Representation Agreements replace enduring powers of attorney in B.C.)

Although a Representation Agreement is the most effective form of living will, other less formal methods of leaving directions are available which still have legal effect. A living will that is not a Representation Agreement is given effect under the new (and unfortunately named) Health Care (Consent) and Care Facility (Admission) Act. Under this Act, if a patient is incapable of giving or refusing consent to medical treatment, the health care provider is to go to the highest ranking of the following people who are available and willing to decide:

  • the patient’s court appointed guardian (committee), if any, or representative under a Representation Agreement, if any
  • the patient’s spouse (including common law or same sex spouse)
  • adult children
  • a parent
  • a sibling
  • anyone else related by birth or adoption
  • if no one else is available, someone authorized by the Public Guardian and Trustee.

The person making the decision will be bound to comply with any wishes expressed by the patient while the patient was still capable. Accordingly, a living will that is not a Representation Agreement can still be binding (although it won’t authorize who can make the decision for the patient – that can only be done in a Representation Agreement). If no wishes are expressed, the person must decide on the basis of the patient’s known beliefs and values. If the patient’s beliefs and values are not known, then the decision must be made on the basis of the best interests of the patient.

In the past we recommended that our clients plan for the possibility of disability by considering an enduring power of attorney. A Representation Agreement is an even more effective tool, as it gives you the ability to include legally valid instructions for your future medical treatment and health care. The ability to make these decisions is long overdue in B.C. For more information about living wills and Representation Agreements, please contact us.

Wills Variation Act Violates Charter

In January the B.C. Supreme Court ruled that B.C.’s Wills Variation Act violates the Charter of Rights. 

The Act permits a testator’s wife, husband or child to apply to the court to vary the will (a testator is someone who makes a will). If the court agrees that the will does not adequately provide for the testator’s wife, husband or child, the court may vary the will to provide for that person.

Because the Act does not give the same rights to a person who was in a “marriage-like” relationship with the testator, the court ruled that the Act violated the right to equality under the Charter of Rights. The court’s remedy was to “read into” the Act the extended definition of spouse contained in the (not yet in force)Definition of Spouse Amendment Act, 1999.

That Act defines spouse to include a common law spouse. A common law spouse is defined as a person who has lived with another person in a marriage-like relationship for at least two years immediately before the other person’s death. It specifically includes a person in a marriage-like relationship with another person of the same sex. As a result of this decision, many more wills are open to challenge under the Wills Variation Act. If you are concerned about your will being challenged, please call us to review the strategies that are available to avoid these claims.

PLEASE NOTE: The definition of spouse has since been amended- click here for more information: New Definition of Spouse May Affect Your Estate Planning.

Competition, Customers and Confidential Information

Employee mobility is at an all time high. As employees look for better opportunities they are moving between jobs and employers more than ever. Many employers are concerned about losing customers and confidential information when employees leave. It is now common for employers to require new employees to sign non-competition agreements (also called restrictive covenants) and confidentiality agreements. The courts are increasingly being asked to decide if these agreements are enforceable.

The General Rule

In the absence of a non-competition agreement, there is no general restriction on an ex-employee soliciting or doing business with customers of a former employer. However, employees owe a duty of good faith to their employer. This duty is broken if, for example, an employee (while still employed) copies customers lists for use after the employment has ended. On the other hand, the duty is not broken if, after termination, the ex-employee obtains customer names from memory or from public directories such as the phone book.

In addition to the duty to act in good faith, company directors, officers and “key employees” owe a fiduciary duty to their employer. These employees may not compete “unfairly” against their former employer.

A B.C. judge was recently asked to stop two investment portfolio managers from competing against their former employer. The former employer claimed that the two employees owed it a fiduciary duty. The fiduciary duty would prohibit the employees from soliciting the clients of the former employer. The two employees collectively managed about $350 million, accounting for 25% of the employer’s assets under management. However, they were simply two of eleven portfolio managers, without any special status and no supervisory or executive duties. As a result, the court ruled that they did not owe fiduciary duties to the employer.

Non-Competition Agreements

To protect its customer base and goodwill, an employer may require that its employees sign non-competition agreements, which prohibit competition against the employer after the employment is terminated. Every non-competition agreement includes a geographic area and a period of time within which the employee promises not to do certain things. 

When the agreement limits the freedom of the employee to use his or her skills and expertise after the employment has ended, the question arises whether the agreement is illegally in restraint of trade. The courts will hold a non-competition agreement to be in restraint of trade and therefore unenforceable unless the employer can prove that:

  1. it has a legitimate “proprietary interest” (e.g. goodwill) that deserves protection;
  2. the agreement is reasonable in terms of geographic area and duration; and
  3. the agreement is not otherwise contrary to the public interest (for example, would upholding the agreement deprive the local community of the services offered by the ex-employee).

The question for the courts really comes down to this: “Is the purpose of the agreement to protect the employer’s legitimate trade secrets and customer data, or to simply eliminate competition?”

What is Reasonable?

What is a reasonable geographic area and period of time depends on the particular circumstances for each agreement. A U.S. judge recently refused to uphold a non-compete clause that would have prevented an employee from working for any competitors of the employer, an internet service provider, for a 12-month period following termination of employment. The judge ruled that a one-year restriction was unreasonable, commenting that in the internet industry, one year “is several generations, if not an eternity.”

Judges are less likely to uphold non-competition agreements contained in employment contracts than those contained in contracts for the sale of a business, recognizing that the parties to employment contracts are often not on an equal footing. If an employer requires a non-competition covenant, an employee often has little choice in the matter.

Confidentiality Agreements

There is no general restriction on an ex-employee using the skills and general “know-how” acquired in the course of employment in future employment. Any agreement imposing such a restriction would be against public policy and unenforceable. However, the use of an employer’s trade secrets by former employees is restricted. The distinction between the proper use by former employees of their skill and general “know-how” and the improper use of trade secrets can be difficult to make. A confidentiality agreement can reinforce the restriction against the use of trade secrets and clarify what type of information is protected.

Employment Contracts – Are They Worth It?

With increasing payroll taxes and new human rights and employment standards regulations, it’s not easy being an employer these days. Making matters worse, whenever there is a dismissal, there is a risk that the former employee will sue. Recent court awards indicate that employers can be liable for substantial damages.

In one recent BC case, a jury ordered an employer to pay over $100,000 to a junior sales representative who was dismissed after 10 weeks of employment. Although the Court of Appeal reduced the award to $41,000, the case still illustrates the potential dangers for employers when dismissing employees.

The employee in this case was fired without any notice. She sued for damages for wrongful dismissal. She also claimed damages for mental distress resulting from being fired and from the way in which she was fired.

The employer was not able to prove that the employee had been fired for just cause. If an employer has just cause, an employee can be dismissed without notice. (Be aware that allegations of just cause are often disputed by employees and can be difficult to prove). 

“allegations of just cause are often disputed by employees and can be difficult to prove”

Without just cause, an employer must give an employee reasonable notice of the termination date, or continue to pay the employee’s wages for a period of time equal to a reasonable notice period. This is referred to as “pay in lieu of notice”. Employees may sue for wrongful dismissal if an employer does not provide reasonable notice or pay in lieu of notice.

In this case the jury found the employer to be guilty of negligent (but not deliberate) infliction of mental distress because of the way the employee was fired. It awarded damages for mental distress of $10,000 and punitive damages of $62,000, as well as damages for wrongful dismissal of $31,000 (about 8 months salary and bonus).

Damages for Wrongful Dismissal
The Court of Appeal upheld the award of damages for wrongful dismissal, although acknowledging that 8 months was at the high end of the scale. The employer argued that one month’s notice would have been sufficient given the employee’s young age, the junior level of her position, and the short period of her employment, factors which traditionally favour a shorter notice period.

However, the court ruled that other factors supported the longer notice period, including the poor job market in that industry at the time of the dismissal, the length of time it took the employee to find a new job, and the fact that the employer had assured the employee of long term employment.

Damages for Mental Distress
The Court of Appeal confirmed that damages for mental distress cannot be awarded unless the employer’s conduct constitutes a cause of action separate from the dismissal itself. An employer does not owe a duty to dismiss an employee in such a way as to reduce any risk of mental suffering. The court reversed the jury’s award for punitive damages.

However, applying a 1997 decision of the Supreme Court of Canada, the Court of Appeal held that an employee can be compensated by way of an extended notice period if the employer acts unfairly or in bad faith in the way it dismisses the employee. While the court overturned the jury’s award for mental distress of $10,000, it increased the award for failure to give reasonable notice by the same amount (by extending the notice period from 8 months to 11 months). This resulted in a total award of over $40,000.

Employment Contracts
As a result of cases like this one, employers are increasingly using employment contracts to attempt to limit the amount that must be paid to employees that are terminated.

When there is no written agreement, an employer dismissing an employee without cause must give at least the amount of notice required under the Employment Standards Act. The employer is also subject to the common law requirement to give reasonable notice, which generally exceeds the minimum standards imposed by the Employment Standards Act. The reasonable notice required at common law is based on various factors, including those discussed in the above case. 

“employment contracts can limit the amount of notice required”

Written employment contracts can limit the amount of notice required. For these provisions to be enforceable, the contractual notice period must be at least equal to the minimum notice required under the Employment Standards Act.

The notice provisions must also be clear and there must be mutual agreement that the contractual notice will be binding. Employers cannot rely on notice provisions unilaterally imposed during the course of employment. The result is that any employer who wishes to contractually limit notice on termination must do so with caution.

While a written agreement provides employers with more protection and certainty, the courts will not always enforce these contracts. This is because the law considers employment to be a unique relationship that is subject to special protection. In addition, many terms of the employment contract are implied by common law. Provincial laws, such as the Human Rights Code and Employment Standards Act, impose other terms.

Employers who decide to prepare written employment agreements should review them and get legal advice. This will increase the chances that the agreements are enforceable, and will reduce the employer’s legal and severance costs in the long run. For more information on this or any other employment-related issue, please contact us.