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Employers may wish to change the terms and conditions of an employee’s contract of employment during the course of the employment relationship for many reasons: a change in business practises or realities, poor performance by the employee or in recognition of good performance. This blog post explores when those changes will be enforceable.
To the extent changes are made to an employment contract that are more favourable to the employee, they will generally be enforceable. Often this is because the employment contract will have been amended with implied mutual consent. For example, if the employer gives the employee a raise and begins paying the employee at the higher rate, the new rate of pay becomes a binding term of the employment relationship between the parties.
The situation is more complicated, however, when the employer wishes to introduce new terms to the employment contract that are less favourable to the employee compared to the status quo. For example, employers may wish to introduce changes to the employee’s entitlements upon termination to limit their financial liability in the event of termination. If an employer simply requires that an employee sign a new contract which limits the employee’s entitlements upon termination, and the employee receives no corresponding benefit in return, the new contract will be unenforceable due to a lack of consideration. Consideration is required in order to enter into any enforceable contract. In short, consideration means that both parties to a contract have exchanged something of value.
In the employment context employers are sometimes prone to threaten termination unless the employee agrees to changes to their employment contract. In Canada, however, continued employment is not valid consideration (See for example Hobbs v TDI Canada, 2004 CanLIi 44783 (ON CA); Francis v Canadian Imperial Bank of Commerce, 1994 CanLII 1578 (ON CA); and Braiden v La-Z-Boy Canada,2008 ONCA 464 [“Braiden v La-Z-Boy”]). For example, in Braiden v La-Z-Boy, the employer threatened to terminate the Plaintiff unless he agreed to a new contract which significantly limited his entitlements upon termination. The Plaintiff signed the new employment contract as he did not want to lose his job. In its decision, the Court found that the changes to the Plaintiff’s contract were unenforceable due to a lack of consideration. The Court, however, also commented as follows:
Nothing in these comments is intended to suggest that it would not have been possible for La-Z-Boy to have entered into a fresh agreement with Mr. Braiden with a notice provision of the sort in question. However, at a minimum, in order to discharge the burden of establishing such a new agreement, La-Z-Boy would have to point to evidence that it clearly communicated the changes in the agreement that governed its relationship with Mr. Braiden, Mr. Braiden appreciated that he was giving up legal rights and consideration flowed for his forfeiture of those rights. [my emphasis]
The Court’s comments in Braiden v La-Z-Boy suggest, that not only must there be sufficient consideration, but also that employers must take care to explain how proposed changes to the employment contract will affect the employee. This is consistent with the Ontario Court of Appeal’s recent decision in Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII), in which it was affirmed that employment contracts are not commercial contracts but rather are marked by an imbalance of power as between employer and employee.
Accordingly, for an employer and employee to make binding changes to an employee’s contract of employment, the employer must:
1)provide fresh consideration for the changes (i.e give the employee some kind of benefit other than continued employment); and
2)ensure that the employee understands the legal rights they are giving up and that they understand they are receiving a benefit for giving up those rights.
If your employer is threatening to terminate your employment unless you sign a new employment contract, you should speak with a lawyer about your rights. Call Monkhouse Law today for a free 30 minute phone consultation!
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