It is a fundamental legal principle that there must be a mutual exchange of something of value in order to create a binding contract. This concept is very important in employment law in a context in which the employment terms are being changed, often to the advantage of the employer.

Take for example, a situation where the company decides to impose upon its employees a new written contract which contains new terms such a modest termination payment, this being the most popular example.

To create a binding contract, there must be value or consideration exchanged between the parties. Should the employer, for example, offer a new and better bonus plan, a higher level of salary or a promoted position in exchange for the agreed new contract, there will likely be consideration to support the agreement.

A good example of this situation arose recently in the decision of Lancia v Park Dentistry. The plaintiff was a restorative dental hygienist. She had been employed with a prior dental practice which was purchased by the defendant. The new employer, six years after the purchase, requested that Lancia sign an employment contract. The new terms included a termination sum which was limited by the Employment Standards Act.

The critical issue under judicial review was that the plaintiff did receive monetary value for the signing the new contract in the sum of $2,000. She was then earning roughly $60 per hour and worked 40 hours a week. Her annual income was approximately $120,000.

Although the case failed for other reasons, the court did agree with the sum paid of $2,000 was adequate. More importantly the court stated that “it is trite law that courts will not inquire into the adequacy of the consideration – a ‘peppercorn’ will do.”

This may give encouragement to employers in their zeal to minimize severance claims.

Working Notice

The case also illustrated a second technique for the employer to impose new contractual terms, by the giving of advance notice of the requirement to sign the new contract. In this case, one option extended by the employer was just that. The employer allowed the employee 18 months advance notice of the need to sign the new contract. As long as this notice is fair, the employee would have no common law claim for wrongful dismissal, given the expiry of this period of notice and a decision not to sign the new contractual terms.

This strategy of advance notice may be complicated where the employee has severance rights governed by the Employment Standards Act.[1] In this context, where the contract is not accepted and the employment thus terminated, the employee will still have a severance claim which may be as high as 26 weeks. The employee would have not only a generous notice period and also the severance sum.

Let Knowledgeable Legal Advice Be Your Guide

These issues are complex and require a firm legal foundation. An employer must be prudent in making changes to employment terms, particularly when doing so for all employees. The risks are high and caution is required.

The employee must be equally careful in determining the correct course of action when facing such unilateral actions. The proposed agreement may have other flaws which may make its enforceability difficult. The bright light says get advice.

If you have questions about such issues, 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] That is, an employer payroll of over $2.5 million annually and 5 years of service or more. Severance is then set at one week per year to a cap of 26 weeks.