Some employees are hired pursuant to a verbal contract of employment. For others, the terms of the contract are set out in a formal agreement.
Written or oral, the agreement between employer and employee is a contract. If some terms of the agreement are uncertain, then basic rights and obligations are implied at law. In addition, all employment agreements are subject to statutory minimum obligations (for example under the British Columbia Employment Standards Act) which cannot be limited or curtailed by contract.
An employment agreement is almost always presented to the employee as an offer that is prior to acceptance by the employee. As an employee, it is important that you obtain independent legal advice prior to accepting any offer of employment. Once accepted, any written agreement is likely enforceable.
As an employer, it is a good practice to implement formal employment agreements at the time of hire. This promotes clarity and certainty and can also serve to confine an employee’s entitlement to notice (or payment in lieu of notice) on termination.
Independent Contractor Agreements
The distinction between independent contractor and employee is critical and getting it wrong can potentially have immense consequences for both parties.
Businesses often need work done by a professional that may not require the full-time dedication of an employee. Independent contractors can fill this role, yet the contractor client relationship is can be problematic, especially when expectations of both parties are not set out clearly. That’s where independent contractor agreements come in. Independent contractor agreements define the relationship between the parties, dictate the terms and expectations of the project, and ensure that the contractor’s status remains as an independent contractor.
Although every independent contractor agreement is different depending on the duration of the project, the scope of the work to be done, and other factors, most agreements address the following key terms and provisions:
- Scope of Services. The contract should define the general work expected and the expectations of what will be delivered and when.
- Scope of Work. The contract should clearly define the work product to be completed, timelines and milestone dates, and requirements for each milestone as specifically as possible.
- Payments. The amount and timeline for payment must be defined.
- Expenses. All known expenses related to the project should be defined and allocated.
- Client and Contractor Responsibilities. The contract should be clear as to what each party is responsible for.
- Non-Disclosure/Non-Solicitation. The contract should have provisions limiting disclosure of the company’s or the business’s confidential information or trade-secrets as well as limitation on the solicitation of the company’s or business’s customers or clients.
- Intellectual Property Assignment. Most independent contractors will be creating valuable intellectual property for the company or business, but as a non-employee, this remains the property of the contractor unless otherwise stipulated. When possible, it is best to assign ownership of the intellectual property rights developed through the project to the company or business.
- Dispute Resolution. Provisions for dispute resolution can often save the parties uncertainty and delays.
- Term and Termination. This establishes the duration of the contractor agreement and procedures for termination.
Limitations of Independent Contractor Agreements
No matter how well you draft an independent contractor agreement, it will still be limited. Because the employee relationship and the business relationship can fall within a gray area, it is important to do what you can to protect your independent contractor status. When the subject matter is disputed (often initiated with the Canada Revenue Agency), the courts have generally looked at the following criteria in rendering their decisions:
These topics are further explained in the CRA publication RC4110 Employee or self-employed. A comprehensive checklist is also provided in this publication. This checklist is useful for a worker or a payer (employer/client) to help determine whether their relationship is a business relationship or an employer/employee relationship.
It is important to be aware of the limitations of an employment agreement or independent contractor agreement before ever signing one. At Sodagar & Company, we can assist in drafting employment and independent contractor agreements and provide strategic advice on how to structure the relationship in order to defend your position of being an employee or independent contractor where there is a dispute.