Employment contracts or employment agreements can be very complicated.What people may not realize is that there are implied terms that the law in Ontario that will be incorporated into an employment contract or employment agreement. These terms may actually not be written down or agreed to between the parties but rather are sourced from jurisprudence. 

This blog delves into the legal issue of implied terms in employment contracts. First, we examine what is an employment contract. Then we look at what are commonly implied terms found in employment contracts and what are some examples of implied terms in employment contacts or employment agreements in Ontario. 

What is an Employment Contract?

An employment contract or employment agreement is a legally binding agreement between an employer and employee that sets out the terms and conditions of the employment relationship between each party. It can be an oral agreement or a written contract. 

Common clauses or terms in an employment agreement or employment contract would be clauses related to the employee’s role and responsibilities in the workplace, pay, wages or income, vacation time, sick days, benefits and / or other workplace or employment policies that have been. One of the most important clauses contained in an employment agreement or employment contract is the one relating to the employee’s dismissal. This clause sets out how the employee will be terminated or fired and what notice they are entitled to.In most cases, the employer attempts to limit an employee’s notice to the minimum notice entitlements found in Ontario’s Employment Standards Act, 2000. 

What is an Implied Term in An Employment Contract? 

An implied term in an employment contract or employment agreement is a term that is not written down or agreed between the parties orally but remains a term via jurisprudence. Despite the fact that an implied term is not written down (or contemplated by the parties), the implied term is binding between the employer and employee.

As set out above, most implied terms of an employment contract or employment agreement are derived from the common law. The “common law” is simply legal rules that are derived from judge-made decisions in Ontario or Canadian courts. The common law is developed by way of precedent, which means that what a judge decides in one case in a higher appellate court will now apply to all new cases before the lower courts that have materially similar facts and legal issues to the first case.

Here are Some Implied Terms: 

Implied Duty of Fidelity to the Employer.

This duty is owed from an employee to an employer. An employee must be loyal and honest with respect to their duties and responsibilities as an employee in the workplace. For example, an employee is expected to not directly compete with their own employer while they are employed by that employer. Another example is that the employee should keep in confidence important information related to the employer’s business such as financial information, trade interests or important client lists. 

If the employee breaches their duty of fidelity to the employer, they could be fired for cause. Further, the employer may even move to bring a legal proceeding against the employee for the breach. If the employer is successful in their claim against the employee, the employee may have to pay damages to their former employer. 

For additional information related the implied duty of fidelity in a post-employment situation, please review our blog entitled What obligations do departing employees have to their employers?. 

Implied Duty of Good Faith and Fair Dealing. 

In Ontario, employers owe their employees a duty of good faith and fair dealing upon termination and honesty in contractual performance. As such, to be terminated in bad faith means that the employer has acted poorly and contrary to this duty during the time that the employee was dismissed or terminated from their job. When that occurs, the employee may claim additional damages from the employer upon dismissal. For instance, moral damages may be appropriate when the employer engages in conduct that is untruthful, misleading or unduly insensitive at the time when the employee is being dismissed thereby breaching their duty of good faith and fair dealing.

For additional information about the implied duty of good faith and fair dealing in the manner of termination, please refer to our blog entitled The Legal Landscape of Bad Faith Dismissal. 

Reasonable Notice. 

When an employee is dismissed from their job, employers must provide reasonable notice (or pay in lieu thereof) to an employee upon dismissal or termination.

Reasonable notice at common law is routinely confused with an employee’s minimum notice entitlements set out by statute.  In Ontario, those minimum statutory entitlements are set out in Ontario’s Employment Standards Act, 2000 (“ESA”). These statutory entitlements are minimum entitlements. An employee may be entitled to a significantly longer notice period under the common law. For instance, depending on the individual nature of the case, a wrongfully dismissed employee may be entitled to over 24 months of common law notice. 

Common law notice can be determined upon each individual case using a set of factors. These factors are:

1. The character of the employee’s employment. This means what type of job or position the employee had at the time of his or her dismissal.
2. The length of the employee’s service to the employer. This means how long the employee worked for the employer at their job.
3. The employee’s age at dismissal. This one is self-explanatory, but it is an important factor in determining if the employee is going to need a lengthier notice period to get a job especially if they are older.
4. The availability of similar employment. This means that the court will look at how many other jobs of similar type are available accounting for the employee’s education and skillset.

However, the employment contract or employment agreement may include a termination clause that can limit an employee’s notice entitlement to the minimum notice entitlement found in the ESA. 

We have a lot of information about notice of termination on our website as it is such an important issue in cases where an employee loses their job and can be a contentious area of employment law.Please review the following for more information: 

• What You Need to Know About Common Law Notice
• The Bardal Factors Explained: A Guide to Common Law Notice in Ontario
• What is working notice?

Duty to Mitigate. 

The duty to mitigate means that upon dismissal an employee has a duty to take reasonable steps to “mitigate” their damages. In the context of employment law, these reasonable steps to mitigate their damages mean that the employee should look for alternative employment upon dismissal. The onus to prove that the employee has failed in their duty to mitigate rests with the employer. They must show two things to prove to Ontario courts that the employee failed in their duty to mitigate. The first is that the employee did not perform a reasonable job search. The second is that the employee had similar jobs available to them if they had just undertaken a reasonable job search.

Further, there are only limited circumstances that the employee may be able to argue that they are not subject to a legal duty to mitigate. The first instance could be if the employee has a fixed-term contract with the employer that is silent on the duty to mitigate. The second could be if the employee is totally disabled and, as such, the employee is not able to look for alternative employment.

The consequence of failing in the employee’s duty to mitigate is that the employee’s termination pay under the common law should be reduced to reflect this failure. To be clear, the employee is still entitled to compensation in terms of notice or pay in lieu of that notice under Ontario’s ESA. Secondly, if the employee’s alternative employment is substantially inferior to what they had in their previous employment, the employer may not be able to get the benefit of the employee’s income as such income may not be regarded as “mitigation income” in the eyes of the law. This analysis is case-specific and should be applied using the context of each case.

For more information, please see our blog entitled 3 Things to Know about an Employee’s Duty to Mitigate. 

How Can Zeilikman Law Help? 

The best course of action that either an employer or employee can take when they have questions or concerns about an employment agreement or employment contract would be to approach an employment lawyer. The employment lawyer can assist either party by helping them understand their employment law rights and obligations with respect to what is contained in the employment agreement.

For more information about this topic and related employment law topics related to termination for cause, please visit our website and read:

• Signing a New Employment Contract? Making Changes to an Existing Employment Agreement? Learn Why “Consideration” Is Important!

Employers and employees can contact our office at (905) 417-2227 or online here to schedule their own confidential consultation with Zeilikman Law.