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Long-Term Employment Contracts – How Long Is too Long

Posted On: January, 20 2015

There has been a lot of recent controversy in the NHL over teams that are trying to sign franchise players to extremely long-term contracts in order to avoid breaching the salary cap. NHL locks horns on Kovalchuk deal – Globe and Mail. The idea behind the long-term contract is that the compensation under the deal is front-loaded, but the overall compensation is averaged over the life of the contract in order to bring the team under the salary cap in the short-term.    The New Jersey devils recently raised the ire of the NHL by trying to sign Russian left-winger Ilya Kovalchuk to a record-breaking 17-year, $102-million deal.  The league objected to this, and Kovalchuk and the Devils went back to the negotiating table and worked out a new contract for 15 years worth $100 million.

Not every employee in Ontario is being offered 15-year contracts, but if an agreement of that nature was made between an employee and employer, what would happen?  The answer depends on a number of factors, not least of which is how the employee and the employer actually treated the agreement in practice.  If the agreement went before the courts, however, there would be a question about its legality.  Section 2 of the Employers and Employees Act provides that, “No voluntary contract of service or indenture is binding for longer than a term of nine years from the date thereof.”

The majority of employment contracts, however, are of indefinite duration, meaning that there is no term specified.  In Hine v. Susan Shoe Industries Ltd., the Ontario Court of Appeal held that contracts of indefinite duration do not run afoul of the Employers and Employees Act.

 

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