In a recent post, we reviewed the basics of “consideration”, generally and specifically in the context of an asset purchase by which the buying company extended a new offer of employment with restrictive terms.

Basic Rule

The law is fairly well established that continuing employment will not be proper consideration to support a new contractual term.

Consideration in the Reverse Context

One might then ask what rights an employee may have to support a one sided new term to the employee’s benefit. Presume, for example, the employer offers a raise, a new and better bonus structure or some other form of apparent improvement in employment terms. Presume also that there is no change in employment duties.

It would appear unfair to allow the employer to later deny these improved terms of employment by arguing “no consideration”.

Precedent Case

There are cases arguing this concept successfully but generally they are tainted with unsavoury allegations of unfair conduct by the employee. A good example of this is shown in a recent case involving a person employed as General Manager of a casino located on a First Nations reserve in Ontario.[1]

In this case the General Manager suggested employment contracts for all employees, including for himself. Unlike the other contracts, which contained a term limiting severance entitlement, his contract was for a 7 year fixed term with an additional provision that he would be entitled to the remaining balance of this term should be terminated. It was hence the GM who initiated the new contract and not the employer, as is usually the fact situation.

Although there were other reasons for denying this claim[2], the court found that this new employment contract failed due to lack of consideration. This case shows unusual facts and for this reason should be read cautiously.

Need to Rethink Consideration?

The dissent of Slatter J.A. in the 2011 decision of the Alberta Court of Appeal[3] raises an interesting issue as to whether the search for consideration in an ongoing employment relationship is nonsensical.

This opinion asserts that consideration defies reason in this context. An employee, the decision argues, should be prevented[4] from denying the covenant, due apparently to his or her tacit acceptance of the term.

The dissent continued to argue that consideration required for a contractual variation in an existing relationship is nothing but a legal fiction which should be revisited.

This issue of consideration as a legal pretense is not without logical support. This is particularly evident in the fact situation discussed above in which it is the employee who asserts a promise made by the employer for such benefits as an enhanced severance scheme or improved post-retirement benefits or even a raise. The traditional analysis employed of the application of a contract model and hence the need for consideration vividly makes no sense when analyzed from the opposite view.

The employees are thus expected, in the application of this traditional model, to prove some additional indicia of consideration, apart from continued employment. Should the required evidence really be “I told the company I was ready to immediately tender my resignation but decided to remain employed, given these promises”? This could be the only form of consideration.[5]

The decided cases would mean, as noted in the above dissent, that any improved employment benefit given in the course of employment does not create a contractual obligation. Does this mean a salary increment or an improved bonus or benefit plan is not a binding obligation? This is illogical.

A 1985 decision of the B.C. Supreme Court[6] spoke to this issue of, in effect, a relationship contract, noting that the acceptance of certain terms can be proven by the conduct of the parties, as opposed to the traditional search for consideration.

An Evolving Process

The law is a dynamic instrument. This question of consideration is complex and in the given example can lead one to question the need for consideration in the reverse model.

Both sides to the equation, employer and employee must understand the legal niceties of this complex issue.

Get Advice and Know Your Rights

Whether you be employer or employee, it is important to know the law and your rights and remedies. This issue is particularly complicated. For advice on this issue from either side, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416 364 9599 to schedule a consultation.

 

 

[1] Waddilove v 1748960 Ontario

[2] One of which was Section 134 of the OBCA provides for the standard of care required of officers and directors of a corporation.  The statute mandates that “every director and officer of a corporation in exercising his or her powers and discharging his or her duties to the corporation shall, act honestly and in good faith with a view to the best interests of the Corporation and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.”

[3]  Globex Foreign Exchange Corp v Kelcher

[4] That is, estopped. Presumably detrimental reliance must also be shown.

[5] Technically known as “forbearance”, that is the decision not to resign.

[6] Rose v Shell Canada delivered by then Southin J.


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