I have written many blogs on the legal enforceability of employment contracts because judges are increasingly refusing to enforce them and I want employers to be live to this issue.
Employers should assume that changes to employment contracts that benefit the employer will be challenged.
This blog summarizes a recent case which sets out three reasons why an Ontario judge recently refused to enforce an amendment to an employee’s annual sales plan.
In this case, the employee signed a 2017 sales plan which stated in part:
In order to be entitled to receive a commission you must be employed by IB at the time the sale has been booked and billed.”
The judge concluded that this language did not exclude the employee’s right to be paid commission during the common law reasonable notice period.
The next sales year the employee signed an amended annual sales plan which read in part:
Commissions are not payable in respect of any period of notice, whether contractual, statutory or based upon the common law, following termination of your employment for any reason whatsoever, unless the sale transaction was booked and billed prior to the date of termination of your employment, The date of termination is the date on which your active employment with Information Builders ceases and you are no longer providing services to the company. [emphasis added]
The judge refused to enforce the amended contract for three reasons.
Challenge #1 to amended contract: Employer didn’t bring change to the employee’s attention
In this case, the employee testified that he relied on a document he received from the employer summarizing major changes to the sales plan which did not identify the above-noted change and assumed that there were no other material changes made to his contract of employment.
The judge concluded the employer has the burden of proving that the employee knew about the changes or that the employer properly communicated these changes to the employee. She also concluded there was no evidence that the relevant changes to the 2018 Sales Plan were brought to the Plaintiff’s attention before they were implemented.
Challenge #2 to amended contract: Employer didn’t provide the employee with legal consideration
The judge concluded that the changed 2018 sales plan provided the employee with less compensation on termination than under the earlier contract such that the employee received no benefit for signing the contract. When doing so the judge quoted with approval from an Ontario Court of Appeal case which stated: “The requirement of consideration to support an amended agreement is especially important in the employment context where, generally, there is inequality of bargaining power between employees and employers.”
Challenge #3 to contract: The termination clause potentially violated the Employment Standards Act
The judge concluded: “I find that there is a real possibility that a common law notice period calculated using the (employee’s) base pay would be less than the (employee’s) minimum statutory entitlements. Section 5 of the ESA prohibits such a result.”
Lessons to Be Learned:
1. If an employer wants to change the terms of an existing employment contract then there are many requirements that must be met including the requirement to bring the changes to the employee’s attention.
2. Many salespersons are provided with a new sales plan each year. If a proposed change to this annual plan takes away an employee’s rights then the employee must receive something in return and usually this is some form of compensation.
3. If a change to an existing employment contract could potentially violate the Employment Standards Act then many judges will refuse to enforce it.
For over 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416-317-9894 or at [email protected]