Employment agreements with your children

June 25, 2024

So, your child has finished school, university or a trade and now seems like a great time for the now adult children to come back to the family business or farm.

This is a common occurrence; everyone is excited about 2 (or more) generations coming together in a business. A conversation is had across the kitchen table about when they will start and maybe not much else.

You might think what else needs to be discussed: I am the parent and I tell the child what to do? Well, the dynamic is starting to shift now and to make sure things stay on track, here are some items to consider and discuss:

1. What is the child’s role and what level of responsibility and autonomy will they have:
   • Is the child starting off as an employee with very limited decision-making ability or are they coming in at a more senior level? If coming in at a senior level is the parent ready to “let go” to allow the child’s contribution? Will there be “board meetings” or strategic planning meetings?
   • Are there existing staff structures that the child needs to fit into?
   • Are there other family members, including siblings, already in the business? If so, how will that relationship be managed? Will one sibling be directing the other or can they have separate roles on a more even footing?
   • Do they have targets or other performance measures?
   • Can they be terminated or face other disciplinary action?
   • How do you balance the child “getting away” with things because they are your child or you being too hard on them to avoid this perception of favouritism? This issue becomes more overt when you have other employees, some of whom may have been with you for a long time.
2. How is the child being paid:
   • In accordance with an employment award?
   • Above award?
   • If no award is applicable, then on what basis?
   • In return for equity?
   • In return for a promise “one day this will all be yours”?
3. Long term plan:
   • Has an expectation been set that the child returning is some sort of succession plan?
   • Has an expectation been set for the timing of mum and dad’s retirement or even the sale of the business to the child?
   • If it is part of a succession plan, what might that look like? Will there be an expectation that the child purchases the business; takes over debt; financially supports mum and dad in retirement?
4. If accommodation is part of the child’s employment package and things unfortunately end in a way no one ever wanted or expected, how is that child removed from the property?

To reduce the likelihood of a dispute and possible breakdown of family relationships, it is important for the roles and obligations of parent and child to be clearly defined and documented in writing.

Having a documented employment agreement provides the following benefits for both parties:

• Clearly defined expectations and roles – this leaves less room for misunderstanding about who is responsible for what and provides accountability.
• Entitlements to be paid/provided to the employee child – security as to income, rights to accommodation and/or vehicles.
• In the event of a relationship breakdown involving the child and their spouse, is it clear what their role in the business is and what they are entitled to?
• In the event of the death or incapacity of a parent, an employment agreement may become very important to determine the employee child’s interests vs the non-employee children’s interest.

But remember, it is not just enough to have a documented employment agreement, the agreement then needs to be followed, and updated as things change!

Please contact a member of our Business Services Team if you would like to discuss how to document your child’s employment with your business.