I have, on numerous occasions, met founders whose startups, well, started up, leaving them playing catchup. Overlooking employment agreements – “we’ll worry about those when we have 10 employees…” – is a critical mistake. It’s like laying rakes all around your business and hoping you don’t step on any. As an employer, “informality” in this regard is not an option; you have agreements in place with your employees, whether you know it or not. Employment agreements don’t need to be in writing; something you mentioned when hiring an employee, or perhaps something you included in an email, may now be a key term of employment, even if that wasn’t your intention. Further, there are important terms of employment that are “implied by operation of the law,” meaning that your employee may have significant entitlements that you never agreed to and which neither you nor the employee are even aware of.

Think of it this way: if you don’t know what the terms of employment are as an employer, I can assure you that you will not like many of them.

A poorly drafted employment agreement can be nearly as bad as no written agreement at all. There are many ways to prepare what I would call a “poor” employment agreement, but, as a start, any agreement not drafted and implemented with an understanding of the 3 points below will fall into that category.

I want to start this Startup 101 here because this is the most common misconception I see in terms of a surprise employment law liability precipitating a cash flow crisis. I have – again, on numerous occasions – met with entrepreneurs who mistakenly believed that terminating an employee was as simple as providing 2 weeks’ notice. Sure, many BC employees with less than 3 consecutive years of employment may be entitled to 2 weeks’ notice of termination under the Employment Standards Act (see here for details), but a) longer-serving employees would be entitled to more statutory notice, and b) this is only the statutory minimum, and does not account for an employee’s common law notice entitlement (often referred to as common law severance).

Common Law Reasonable Notice:

Most employees are entitled to far greater notice periods under the common law. Common law notice is a term implied by operation of the law, meaning that your employee could be entitled to several months’ notice without any agreement between the parties to that effect. (Try our severance calculator here to get a sense for what reasonable notice entitlements can look like.)

Employers can reduce an employee’s notice entitlement to the minimum amounts stipulated in the Employment Standards Act, but this will generally require a well-drafted termination clause in an enforceable contract. More on enforceability below…

An employee in their 30s or 40s with just 9 months’ service may be entitled to 2 or 3 months of notice (more in some cases), or payment in lieu-thereof (meaning a severance payment equal to 2-3 months’ compensation). Entrepreneurs may find 3 or more months’ wages for a 9-month employee shocking, and understandably so. The important thing to note is that this situation can be avoided! Entrepreneurs, be sure to mind your employment agreements.

Just because you and someone working for you decide that they are an independent contractor does not make it so. For startup founders, classifying workers as subcontractors instead of employees might seem like a convenient way to save time and money. Subcontractors don’t require vacation pay, overtime, or the termination notice employees are entitled to, which can help reduce immediate costs. However, this shortcut comes with significant risks that can threaten your business in the long run.

The Risks of Misclassification:

Misclassifying employees as subcontractors can lead to serious financial and legal repercussions. Employees are entitled to protections under the Employment Standards Act of British Columbia, and failure to provide these can result in:

• Back pay for wages, overtime, and vacation.
• Fines, penalties, and interest on unpaid entitlements.
• Audits or fines from the Canada Revenue Agency for improper tax reporting.

Why Convenience Isn’t Worth the Risk:

The convenience of treating workers as subcontractors often hinges on misconceptions about employment relationships. Labeling someone a subcontractor in a contract doesn’t override the actual nature of the working arrangement. Courts and regulators assess factors such as:

• Control: Who dictates the work schedule and methods?
• Tools: Are the tools and equipment provided by your business or the worker?
• Financial Risk: Does the worker bear financial risks or reap independent profits?
• Exclusivity: Can the worker take on other clients?

If the reality of the relationship aligns more closely with an employment arrangement, your “subcontractor” may legally be an employee.

The Smart Approach:

Avoid costly mistakes by evaluating each worker’s role carefully. Invest in clear contracts and seek professional legal advice to ensure compliance. The short-term ease of misclassification is rarely worth the long-term risks to your startup’s stability.

Beyond having a well-written contract, employers must address two fundamental issues: execution and consideration.

Proper Execution of Contracts:

A contract must be executed correctly to be enforceable. This means:

• Clear Acceptance: Both parties must agree to the terms, ideally by signing the document before work begins.
• Voluntariness: The employee should not feel coerced into signing the agreement. Allowing adequate time to review the terms—and seeking legal advice if needed—can help demonstrate fairness.

Providing Valid Consideration:

Consideration is the exchange of value that makes a contract binding. For new employees, consideration typically includes the promise of employment in exchange for the employee’s agreement to the terms. For existing employees, introducing a contract may require additional consideration, such as a raise, promotion, or bonus. If a contract is not signed until after employment begins, and no additional consideration is provided, employers risk a court ruling that the contract lacks enforceability.

Without valid consideration, even the most carefully drafted contract may be deemed unenforceable.

A well-executed employment contract supported by valid consideration not only protects your business but also establishes clear expectations with your employees. By addressing these foundational issues, startups can reduce the risk of disputes and focus on growth with confidence.