Consideration in Employment Contracts
The legal principle of consideration applies to employment contracts. Each party must give something in order for the contract to be valid. Typically, the employee gives away certain rights by signing an employment contract in exchange for the employer giving the employee a position.
However, if the employee has already started the position, she cannot sign away her employment rights without receiving something in exchange. Continued employment is not sufficient. So, unless the employer offers the employee a higher salary, an increased bonus, increased benefits or some other form of compensation, it is likely that the courts would not find that employee’s contract to be enforceable.
This was recently emphasized by the Ontario Court of Appeal in Holland v Hostopia.com Inc., 2015 ONCA 762.
Mr. Holland signed an employment offer before he started working for Hostopia. It stated that at some point he would be required to sign an employment agreement. He started working and nine months later he was presented with the employment agreement which he signed. The employment agreement differed from the original offer. It included a termination clause attempting to limit Mr. Holland’s termination and severance pay to the minimums provided in the Employment Standards Act (ESA). Mr. Holland worked for Hostopia for seven years. When his employment was terminated, the company paid him only the minimum amounts from the ESA as per the employment agreement.
Mr. Holland sued the company arguing that he was entitled to reasonable notice of termination or pay in lieu of notice, which was significantly more than the minimums under the ESA. The Court of Appeal agreed with him.
The Court of Appeal found that the termination clause in the employment agreement was not enforceable. This was because the company had not provided Mr. Holland with consideration for the employment agreement. If the company wished to add the termination clause to Mr. Holland’s contract of employment, it had to give him something more such as a raise, increased benefits or increased vacation time.
Why is this important to you?
If you were required to sign an employment contract after you started working there is a possibility that it is not enforceable. That means that if you are fired from your position and you employer provides you only with the amounts of termination pay and severance pay required under the ESA, you may be entitled to more. It is important to review your contract with an employment lawyer to determine your rights and entitlements.
If you have questions about an employment contract or have been terminated, please contact us at [email protected] or 647-204-8107.
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