Why Employees Must Sign their Employment Contracts and Policies Before they Start Work
Most of my clients are unaware of the legal challenges that could occur if an employee doesn't sign their employment agreement and policies before their first day of work.
In a hurry? Skip or come back to the details and jump to the 3 Take-Aways now.
The Courting Phase of the Hiring Process
We've all been there. We find a great candidate and the courting phase of the hiring process begins.
Hiring Managers will have various discussions with the candidate about the position. As with any sales function, the sales person (Hiring Manager) highlights and focuses on the high level advantages of the position and creates an oral or emailed outline of the deal. This typically looks like a welcome email that includes the hire date, position, salary and benefits - the happy stuff that courting is made of. The communication usually concludes with "Larry, we're looking forward to working with such a high caliber candidate. We'll have the employment agreement ready for your signature on your first day of work."
The prospective employee accepts the position by reply email. Sometime later, the candidate - who is now an employee - signs additional documents including benefits forms and, most importantly, their employment agreement and maybe even the the policy manual.
You're nodding your head and wondering what the problem is here. You're not alone. Most employers follow this process without a second thought.
However in recent cases, the Courts have found that an employment agreement signed after an offer letter was presented to a prospective employee or after the first day of work was unenforceable.
These cases typically involve an employee who signs an employment contract after the employment relationship already exists that includes a clause that severely limits the notice period in the event of termination without cause.
When the employee is terminated in the future, you will count on that signed termination clause, and even a mediocre employment lawyer will argue that the contract isn't enforceable because you didn't provide their client with consideration when changing their terms and conditions after hire.
These cases reinforce the importance of ensuring that all terms and conditions of employment are signed prior to the prospective employee's first day of work.
When you enter into a new employment relationship with a prospective employee, the consideration you're providing the individual after the contract has been signed, is work (employment), salary, benefits, ect. In return, the consideration the individual is providing to you is their signing off on your terms and conditions and providing you with services. All good.
However, once the individual is bum-in-the-seat in your company, the employment relationship has begun and you can no longer offer the individual employment in exchange for signing new terms and conditions because the individual is already employed.
Putting a set of never-before-seen terms and conditions in front of a new hire after they begin work essentially changes their existing employment contract - whether implied or executed in writing.
When you want the individual (now an employee) to sign an employment contract with terms and conditions after the employment relationship has begun, you must provide the employee with something more. This is typically a signing bonus, added benefit, increase in compensation, or extra vacation time.
3 Take-Aways for Employers
- All conversations or emails between you and the prospective employee during the hiring process should end with "employment is conditional on signing an employment agreement and company policies prior to starting work".
- Make sure that a comprehensive employment agreement is signed prior to the employee starting work.
- It's also important that the document that holds your conduct policies is presented to the employee together with their Employment Contract Agreement and also signed before starting their engagement to ensure that the conduct policies are legally enforceable.