Jul 17

Implied Terms – The ‘Invisible Ink’ in the Contract, Toronto Employment Lawyer

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In most cases, parties that enter into a contract agree on a specific set of written terms, which tend to indicate the importance of these terms to the parties.  However, the written terms of a contract are not always the only binding terms.  Terms can be implied into the contract in certain ways that the parties may not have initially turned their mind to, and may result in some unforeseen consequences. 

 This post explores some implied terms that both employees and employers can expect within the area of employment law, and how implied terms (or the lack thereof) can affect the working relationship.  

Implied Terms 

 Terms can typically be implied in two ways.  

1.Firstly, terms can be implied by the courts as necessary components of the agreement that give effect to the intentions of the contracting parties.  This often applies to terms implied for “business efficacy” in the commercial context, as they may be common industry practices or necessary to fulfill a party’s contractual duties. 

2.Secondly, terms can be implied by law, often for public policy reasons.  This can be done by written laws or by the courts.  For example, the Sales of Goods Act implies a term into sale agreements that the product delivered would be usable for its designated purpose.  

 The Usual Implications  

The two most common implied terms within the employment context are the following:  

1.Reasonable notice upon termination, and 

2.A duty of honest performance of contractual duties. 

 It is an implied term of employment that an employee is entitled to receive reasonable notice for the termination of their employment.  The purpose of notice is to provide an opportunity to an employee to seek alternative employment, bridging the gap between one job to the next.  Depending on the characteristics of the employee, the amount of notice changes to take into account variables that would change how long getting a new job may take.  

Furthermore, parties to a contract have a duty to perform their contractual obligations honestly.  Once the parties have come to an agreement on terms, they should not be trying to take advantage of the other and should uphold their end of bargain. 

Other terms may be implied depending on the context of employment, which employers and employees alike ought to be mindful about.  

What is not Implied? 

Not all terms are able to be implied.  Implied terms must adhere to the principles behind implied terms: business efficacy or public policy.  If a term does not fall into these categories, it will not likely be implied. 

 In Hampton Securities Limited v Tassone, 2017 ONCA 69, an employee working as a financial trader was terminated.  Towards the end of his employment, the trader’s trading account stood in a loss position – approximately $700,000.00.  The employer took the position that the employee was personally responsible for the loss, and withheld $100,000.00 the employee kept in a reserve trading account and sued the employee for the remaining $600,000.00.  The employer claimed that it was an implied term within the employment agreement that the employee was personally liable for the loss.  

The motion judge and Court of Appeal rejected this argument.  The contract between the parties did not include any terms like a personal liability clause, nor did the employer provide evidence that it was a standard industry practice for employees to be personally liable.  Without any evidence, the employer could not demonstrate that the alleged term should be implied for business efficacy or policy reasons.  For this reason and others, the employer’s attempt to recover from the employee was denied. 

 Take Away 

In the employment context, there are terms that may or may not be implied depending on the characteristics of a worker’s employment.  Compared to commercial parties, prospective employees may not be sophisticated enough to consider terms that may be implied, which could result in uncertain situations in the future.  Implied terms could provide additional entitlements or obligations that may not be known until it’s too late.  It is always advisable to seek advice, especially upon termination, to ensure that your rights are protected.

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