The Good and Bad of Written Employment Agreements

There is much good that can come from a written employment agreement.  But there is also a considerable amount of trouble lurking if it is not well drafted.

Both sides of this coin were evident in the case of Ernst v. Destiny Software.  In a previous post we noted how the written agreement helped the employer win its argument that there was cause for dismissal.  The decision also reviewed how written employment agreements are properly interpreted and made a couple of findings against the employer based on what was not in the agreement.

The most important point is that the words of the agreement as written will govern.  It is only if the words, considered objectively, can be interpreted in more than one way that a court will look at other evidence.  The context of the surrounding circumstances is important, but that is not a broad inquiry and "the words of the contract must not be overwhelmed by a contextual analysis."  In Ernst, the known facts of where the employee lived and where the employer was headquartered were part of  the "factual matrix" to be considered, but the correspondence leading up to the completion of the agreement was not.

As the court said, it "must determine the intention of the parties from the words of the contract and not interpret the words of the contract based on the intentions of the parties."  When the words are clear, evidence of the negotiations is unhelpful and "it is only the final document which records a consensus."

It was on a plain reading of the employment agreement that the court determined Ernst had been entitled to work from home in Alberta, but not to unilaterally move and work from his new home in Mexico.

On the other hand, the employer was not able to recover for vacation taken by Ernst beyond the amount of vacation accorded by the contract.  The court noted that there was no provision in the employment agreement to make Ernst liable to the employer for such amount.  Similarly, the employer's claim to be reimbursed for office equipment paid for by the employer but retained by Ernst after termination was denied.  Again, the employment agreement was silent on the matter.

In summary there are two simple lessons for employers:

  • make sure the agreement plainly says what you mean to say, and
  • make sure the agreement covers everything that is important to you.

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