Originally published on February 4, 2013
“Employees are better off without a written employment contract.” Explain whether you agree or disagree with this statement drawing on the course materials.
I’ve asked the above question on an employment law exam. What do you think? Lawyers who work for employers usually advise their clients to always prepare a written contract and ensure that employees sign it before beginning work. That’s good advice for employers. But if it’s good advice to employers, does it follow that it is also in the interests of employees to have a written contract? It is the employer in almost every case that drafts the employment contract. Employees usually just sign on the dotted line. Should we expect that these contracts are designed to advance the employees’ interests?
What Happens When There is No Written Employment Contract?
I had a student recently who told me he’d been working at Yorkdale’s Victoria’s Secret for three weeks and still didn’t know what he was being paid. He hadn’t been
Are Employees Better Off Without a Written Employment Contract?
given a contract to sign, and no manager had told him his wage rate. What happens when an employee begins working without a written contract?
The answer is that the employee is working in accordance with a non-written contract, a verbal or oral contract. Every employee has a contract, but many employees do not have a written contract. Issues can arise when the parties try to figure out the precise terms of the contract when nothing was written down. Sometimes, there is a discussion before the employment begins in which the parties agree on certain conditions. The employer says, “Start on Monday, and we’ll pay you $15 per hour.” In that case, the contract terms consist of a wage rate of $15 per hour, and a bundle of other terms that are read into the contract by operation of statutes and the common law (see below).
This is what happened in Rejdak v. Fight Network. The employer made an offer to the employee in a telephone conversation that included certain terms, and when the employee accepted the offer, an enforceable verbal contract was formed. The written contract given to the employee on his first day of work, which included terms beneficial to the employer not discussed in the earlier conversation, amounted to a proposal to amend the original verbal contract. It proved to be unenforceable for lack of new consideration flowing to the employee.
What Terms are Imported into a Non-Written Employment Contact?
The terms of a non-written employment contract can be ascertained by evidence of what was agreed verbally, or from what actually happens in practice. The Victoria’s Secret employee will learn his wage rate when he receives his first paycheque and stub. Sometimes, evidence of the terms of employment can be gleaned from other employees’ terms of employment. For example, if every new employee is covered by the employer’s health plan, then that is strong evidence that the newest employee is also covered by that plan, even if that coverage wasn’t written down anywhere or even discussed. So, in the Fight Network case just mentioned, the Court found that the written contract’s inclusion of health plan coverage for the employee did not amount to a new benefit for the employee beyond what he was already entitled to receive under his verbal contract. The Court said that the employee, “would reasonably have expected to receive the health benefit plan since it was a standard benefit provided to all employees”.
When an employee begins work without a written contract, their contract includes whatever was agreed verbally, plus a bundle of other terms that are ‘read into’ the contract by law. These come in two forms: statutory terms and implied terms.
Statutory Terms: Employment standards legislation ‘reads into’ employment contracts a bundle of minimum contract terms. So if an employee begins work and there has been no discussion of the wage rate, then she is entitled to at least the minimum wage. The Victoria’s Secret employee might be surprised if his first pay stub shows he was paid more than the minimum wage, but if he is paid less than that, the employer will be in breach of the contract and the ESA. Similarly, all of the rules about overtime pay, holidays, vacation pay, termination and severance pay, et cetera all form part of the contract. An employee does not need a written contract to obtain the terms guaranteed in employment standards legislation. They simply exist by operation of statute.
Common Law Terms: Courts ‘imply’ contract terms to fill the void left when the parties have not otherwise reached an explicit agreement on an issue. Historically, these implied terms primarily benefited employers. British courts implied all sorts of terms that required employees to act as loyal servants to the employer’s financial interests. My favorite was the implied term discovered by Lord Denning in a case called ASLEF (no.2). Denning and the Court of Appeal found that employees who strictly obey their contract terms are in breach of the implied term in an employment contract that employees will not do anything to disrupt the employer’s economic interests, when the intent is to disrupt. This is the origins of the modern rule making ‘work to rules’ unlawful. Implied terms prohibit employees from competing against their employers, require employees to obey lawful orders, avoid lateness and intoxication, and generally be a good a loyal worker. All of these implied terms favouring employers will be part of the contract, regardless of whether the contract is written or verbal. No employer will ‘bargain’ them away in a written contract.
Some implied terms favour employees. The most obvious is the implied term requiring the employer and employee to provide ‘reasonable notice’ of termination. Reasonable notice is almost always considerably greater than statutory minimum notice. That is why it is in the interest of employers to have a written contract that supplants the implied notice term. There are dozens of decided cases in which an employer is attempting to enforce a written notice term, and the employee is attempting to argue that the written notice term should not be enforced. It is rare that an employee ever goes to court to enforce a written notice term, but Wronko v. Western Inventory was one. That case was very unusual because the written contract gave the employee more than he would have been entitled to if common law ‘reasonable notice’ was applied. That hardly ever happens. Almost always, a written notice term is intended to limit the employer’s obligation to provide ‘reasonable notice’ by explicitly permitting the employer to give the employee less than ‘reasonable notice’.
True, the implied term requiring reasonable notice applies to employers too, so a written term that limits the amount of notice could theoretically benefit employees by allowing them to quit by providing less notice. However, employers rarely sue employees for failure to give notice, since the damages caused by the breach are usually negligible.
True, a written contract might grant an employee a benefit above minimum standards and having that in writing might make it easier to enforce if the benefit is later denied. But when a court case devolves into “she said, he said”, judges will often look at what happens with other similar employees when deciding what the parties most likely would have agreed to at the time the contract was entered into. If the practice is to provide a benefit to employees, a judge is likely to read that benefit into a non-written contract, unless there is some reason why the parties likely did not intend that to be the case. See the Redjak case, noted above.
True, some employees possess sufficient bargaining power to negotiate a written contract that is beneficial to their interests as well as the employees. But that is not true of most workers. Most workers just sign whatever contract is placed in front of them. Those contracts are written by the employer or the employer’s lawyers, who are paid to protect the employer’s interests.
Question for Discussion:
I’m not suggesting that employers (or their lawyers) are out to screw their employees. However, the employer’s job is not to bargain the best possible contract for the employee. My question for employment law students is a basic one:
Can you make an argument that employees are better off with written employment contract than if they just start working without a written contract?