Reading Between the Lines: Implied terms in individual employment contracts - LawNow Magazine

Reading Between the Lines: Implied terms in individual employment contracts

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In Canada, every non-unionized employee has a contractual relationship with their employer. What does that contract look like?

Employment contracts may be written or oral, or both. When you sign and return a letter offering you a job, the terms of the letter are the written elements of the contract. That letter usually “incorporates by reference” employer manuals and policies into the contract.

Other people are hired – and agree to terms – on the telephone or orally in an in-person interview. You can agree to your job title and responsibilities, rate of pay, benefits, supervision and starting date in a conversation with your employer.

Characteristic of written and oral employment terms is that these matters are expressed. These terms are identified, highlighted and communicated. The attention of both parties is specifically drawn to them.

As it turns out, there are many things the parties do not express, or even think about. Still, the law will imply these unspoken and unwritten terms into an employment contract. These matters may be so obvious that both the employer and employee just assume they are part of the job (“implied in fact”). Alternatively, they are imposed by legislation and are not negotiable in any event (“implied in law”).

Since an employer and employee do not discuss or agree upon implied terms, it is important to be aware of them. Implied terms can form the basis of wrongful dismissal lawsuits. This article describes the two different sources and some examples of implied terms in employment contracts.

Terms Implied-in-Fact

Terms will only be implied if they are necessary to make sense of the employment contract (business efficacy test). The origin of this test can be traced back to the 1889 English contract case called The Moorcock which established that judges can read in terms that give business efficacy to the contract. For example, an employer and employee usually agree on a salary but they usually do not say it is in Canadian dollars. The local currency would be implied.

No one can contract out of minimum employment standards.These terms are the details that were not expressed between employer and employee but something they both likely intended to agree to. To imply an employment term by fact, a judge must be satisfied the employee and employer would have agreed to the same terms if they had discussed these using context (officious bystander test). The test asks: if an uninvolved third party had suggested including the particular term in the employment contract while it was still being negotiated, how would the employer and employee have responded? If their answer was “why, of course … that goes without saying!”, then the court will imply the term into the contract. It is clear that both the employer and employee assumed the term already existed.

Examples of employers’ implied obligations:

  • Permit employees to report to work
  • Treat employees with decency, respect and dignity
  • Provide a reasonably safe work environment
  • Compensate employees for work performed
  • Reimburse employees for reasonable and authorized expenses incurred on behalf of the employer
  • Provide reasonable notice of termination of work
  • Make sure employees are properly trained and equipped

Examples of employees’ implied obligations:

  • Obey lawful orders of the employer
  • Cooperate in advancing the employer’s commercial interests
  • Protect the employer’s confidential information
  • Do not be late or absent from work without an excuse
  • Do not compete against the employer
  • Perform duties completely, competently and safely
  • Do not harass others
  • No drinking or using drugs at work
  • Give reasonable notice of resignation

Well-established historical practices in the workplace may also be implied in new employment contracts. For example, if it is well known that a job requires frequent travelling, location transfers or work outside of regular business hours, these obligations may be implied in the employment contract.

Implied terms, as “default terms”, can be changed or excluded by inserting clear express terms. Implied terms only fill in gaps where necessary to give effect to the employment contract.

Terms Implied-in-Law

Terms implied-in-law are legal rights and obligations that are set out in legislation. The primary source of these terms is minimum employment standards legislation which says that these minimum terms form part of every individual employment contract.

The context does not matter nor does what the parties intended. The employer and employee may actually express other terms, but these statutory terms will override them. No one can contract out of minimum employment standards. That is because the government imposes these implied terms as a matter of public policy.

Employment contracts may be written or oral, or both.These terms implied by law assume employees occupy a weaker position in the employment relationship. The law sets minimum thresholds that employers must meet, such as minimum wage, notice of termination, overtime pay, employment of children, work breaks, leaves, maximum hours of work, etc. Everyone working in a human resources role must know the minimum standards that are implied into each employment contract.

Conclusion

Unionized employees are governed by comprehensive written collective agreements that set out the rights and obligations of the employer and employee. On the other hand, non-unionized workers, which make up about 70% of Canada’s workforce, are subject to individual employment contracts. These individual employment contacts can have many different forms and attract more legal protection.

Most people incorrectly assume the oral or written agreement is the complete employment contract. However, rights and obligations are usually both expressed and implied. The individual employment contract has more implied terms than any other type of contract. Employees and employers should know the unexpressed and un-negotiated rights and obligations that apply to them.

Authors:

Peter Bowal
Peter Bowal
Peter Bowal is a Professor of Law at the Haskayne School of Business, University of Calgary in Calgary, Alberta.
 

Christina Tang
Christina Tang is a law student at Queen’s Law School in Kingston, Ontario.
 


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