Common Mistakes To Avoid When Drafting An Employment Settlement Agreement


Mony Shah


5 Mins Read

November 27, 2023

Last Updated on: February 24, 2024

Employment Settlement Agreement

Employment contracts are agreements between employers and employees that establish the terms of their work relationship. 

They are crucial to safeguarding business owners by preventing unfair competition and protecting confidential information. Employers can customize contracts to preserve legitimate business interests and negotiate favorable terms with workers. 

However, these contracts cannot override the legal rights and obligations established by the National Employment Standards. Also, they cannot provide legal protections that are less than the minimum in awards, enterprise agreements, or registered agreements. 

Therefore, employers must ensure their contracts are legally valid and enforceable and provide the desired protection. 

Settlement agreements also act as a popular way to ease the transition and reduce stress in modern work scenarios.

Understanding An Employment Agreement Law

An employment agreement is a crucial legal document. This document establishes the terms and conditions of the relationship between an employer and an employee. 

It outlines the rights, responsibilities, and obligations of both parties. Moreover, it includes the following: 

  • Job duties.
  • Compensation.
  • Benefits.
  • Working hours.
  • Termination clauses.
  • Dispute resolution processes. 

An employment agreement, employment contract, job contract, or employee contract ensures that both parties typically sign it after a new hire accepts their job offer. 

This document applies to all types of employees. This includes part-time and full-time employees. Moreover, it has relevance to businesses of all sizes, from small startups to large corporations.

Mistakes You Must Avoid When Drafting An Employment Settlement Agreement

Employment Settlement Agreement

Given below are some of the most common mistakes you must avoid when drafting an employee settlement agreement—

1. Using Outdated Employee Agreements

Employers often commit a critical error by relying on outdated employment agreements. They use one that they have had for a long time. 

It may serve as a starting point. However, it must ensure it complies with the current employment laws and standards.

Employment laws are constantly evolving. Therefore, employers must verify if the significant clauses in the agreement align with the current workplace legislation. 

Failure to do so may render certain parts of the contract null and void. This can expose the employer to severe legal implications. These legal implications can negate the purpose of having a written employment agreement in the first place.

2. Coming Up With Impractical Clauses

Employers may need to be more eager to attract potential employees in the recruitment process. In this process, they often promise benefits and perks without fully disclosing the conditions. 

This can create a situation where verbal promises made during recruitment become legally binding on employers. Even if they are not explicitly stated in the written contract, it can hinder the onboarding process. 

Therefore, to minimize this risk, you must include a clause in the employment contract that states the following: “Only the written contract governs the employment relationship.”

Employers should clearly outline an employee’s compensation, benefits, and perks in their employment contract. Failure to do so can put the employer at risk during a dispute. It’s important to ensure the contract is easy to understand and provides all the necessary information for the employee. 

In such cases, a court can favor the employee. Moreover, the employee can argue that the employer promised them certain benefits and perks during recruitment. 

Therefore, ensuring that the employment contract is comprehensive and detailed is crucial to avoid any potential legal disputes.

3. Jeopardising Business Interests

As an employer, protecting your business interests is critical. One way to achieve this is by creating a comprehensive employment agreement encompassing many aspects. 

Such an agreement should include the following:

  • Provisions safeguarding confidential information. 
  • Preventing conflicts of interest.
  • Protecting your intellectual property rights. 

Additionally, it should extend beyond the employment period. This extension will protect your business interests after the employee leaves. 

Moreover, you must draft these provisions correctly. Poorly worded clauses can limit your ability to sue employees for losses in profit and damages. 

This can be especially problematic when a former employee uses confidential client lists for their benefit. They can also use the list of competitors or solicit your employees and suppliers to compete with your business. 

Creating a comprehensive employment agreement can prevent these nightmare scenarios and protect your business from harm.

It is crucial to have a written contract in place regarding employment agreements. A written contract can minimize legal risks and avoid costly errors. 

While online templates and free resources can provide some guidance, they do not act as a substitute for professional legal advice. 

The expertise of employment solicitors london is invaluable in helping to avoid common mistakes. They help you reduce significant legal risks. 

It may seem like an additional expense. However, the benefits of having a strong employment agreement far outweigh the costs of retaining employment lawyers in memphis to draft it.

Therefore, you can ensure that clear and enforceable terms govern your employment relationships by seeking legal assistance. This gives you and your employees peace of mind.

5. Not Restricting Termination Rights

Employers are required to pay their employees their minimum entitlements. Therefore, as per federal or provincial employment laws, you cannot terminate an employee without cause. These entitlements may include:

  • Compensation for the end of employment instead of notice.
  • Mandatory compensation for dismissal.
  • Continuation of benefits.
  • Outstanding salary payments.
  • Accumulated but unpaid vacation days.

Employees are entitled to receive up to 34 weeks of regular earnings upon termination as statutory notice pay. 

Additionally, they may receive either common law reasonable notice or pay instead of notice if terminated without cause. This can go on for up to 26 months. 

Employers can evade this issue by including termination provisions in their employment contracts. These provisions limit an employee’s common law severance. 

A well-crafted and legally compliant termination clause can restrict employees to their minimum statutory entitlements. 

Conversely, vague or unenforceable clauses are invalid. If a termination clause is deemed void at the time, the employee is eligible for their common law entitlements. 

Drafting an appropriate termination clause necessitates awareness of current laws. Therefore, outdated contracts or neglecting to update contracts for long-serving employees can cause higher severance expenses.

Ending Note

Minimizing risk for employers is crucial, and employment contracts play a significant role in achieving that. 

However, poorly drafted contracts can result in ambiguity. Mistakes commonly made include using outdated templates, impractical promises, failing to restrict termination entitlements, neglecting to safeguard business interests, and not seeking legal advice. 

Therefore, it is advisable to consult an employment lawyer to address these issues. They can also update contracts to mitigate risks and ensure compliance.

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