Employees must receive something of value in exchange for a change to the contract
Changing an employment contract in the employer’s favour can be tricky. Courts have long recognized the inherent power imbalance between an employer and an employee, and employers are required to give employees something in return for a change in the employment relationship.
This something — known in legal circles as “consideration” — has to be of value to the employee. There’s an old saying in contract law that a single peppercorn can constitute consideration, but when it comes to a significant change to an employment contract, the employer will have to be prepared to offer a bit more than a handful of spices.
“Where you start to restrict the employee’s rights, and don’t provide fresh consideration, that is something courts will take issue with,” said Natalie MacDonald, an employment lawyer with Grosman Grosman and Gale in Toronto.
For obvious reasons, courts will never question a change made to a contract in the employee’s favour. If an employer wants to give a staffer more vacation time, a hefty raise or a colossal bonus, more power to it.
But courts won’t always require consideration for changes made to the employee’s detriment. In Stepaniuk v. Intuit Canada, a recent decision by the Alberta Provincial Court, Justice D.G. Ingram said an employer has to be able to manage its business affairs, something that may involve changing some of the terms of employment.
“Employers must have some leeway so long as the changes do not alter the fundamental terms of the employment such as the employee’s duties, remuneration, hours (and) place of employment,” said Justice Ingram.
When an employer attempts to alter such fundamental terms, consideration comes into play.
What constitutes consideration?
Consideration can be any number of things, and will differ in each case depending on the changes made to the employment contract and the terms it contains.
Stuart Rudner, an employment lawyer with Miller Thomson in Toronto, said more money is the most obvious, and most common, form of consideration.
“That money can be in the form of an increase in salary, in a bonus, stock options, anything that puts more money in the employee’s pocket,” said Rudner.
Exactly how much money is required to constitute consideration is tough to peg, he said. He hasn’t seen any cases where a judge quantified what would be reasonable consideration. But common sense would dictate it would have to be substantive to compensate for the change in the contract. Rudner said he’s never seen anything less than $1,000 in value as consideration and has seen it as high as $20,000.
He’s also seen employers introduce benefit plans, such as drug, dental or vision, in exchange for a new contract. Employers could also offer extra vacation time.
“Or it could be a company car,” he said. “Any type of new benefit could be considered consideration.”
Reasonable notice of the contract change could also constitute consideration, though it can be difficult to peg what a “reasonable” notice period would be for the change.
A promise not to fire
Another form of consideration — likely the most controversial one — is continued employment.
In Watson v. Moore Corp., a 1996 British Columbia Court of Appeal decision, the court said where the employer has no clear intention of dismissing the employee prior to the signing and returning of the contract amendment, the mere refraining at that point from firing the employee does not amount to consideration for the change to the contract.
Justice Marc Rosenberg, of the Ontario Court of Appeal, agreed with that view in Techform Products Ltd. v. Wolda, a 2001 ruling.
“Where there is no clear prior intention to terminate that the employer sets aside, and no promise to refrain from discharging for any period after signing the amendment, it is very difficult to see anything of value flowing from the employee in return for his signature,” he said. “The employer cannot, out of the blue, simply present the employee with an amendment to the employment contract, say ‘sign or you’ll be fired,’ and expect a binding contractual amendment to result without at least an implicit promise (not to fire the employee) for some period of time thereafter.”
Courts have set a pretty high threshold for using continued employment as consideration, said Rudner.
“There has to be evidence the employer intended to dismiss the employee before they signed the new agreement and a tacit agreement not to dismiss them for some reasonable time after,” he said. “It’s not enough to say, ‘I would have fired them if they didn’t sign it.’”
Give employees time
In addition to consideration, employers will also want to give employees adequate time to think about the change in the contract, said Rudner.
“You need to give them time to consider the new offer and get legal advice if they want rather than just putting it under their nose and telling them to sign it,” he said.
Employers should also be careful not to mislead employees in any way, and not try to present any existing rights the employee has as consideration for signing the contract.
This something — known in legal circles as “consideration” — has to be of value to the employee. There’s an old saying in contract law that a single peppercorn can constitute consideration, but when it comes to a significant change to an employment contract, the employer will have to be prepared to offer a bit more than a handful of spices.
“Where you start to restrict the employee’s rights, and don’t provide fresh consideration, that is something courts will take issue with,” said Natalie MacDonald, an employment lawyer with Grosman Grosman and Gale in Toronto.
For obvious reasons, courts will never question a change made to a contract in the employee’s favour. If an employer wants to give a staffer more vacation time, a hefty raise or a colossal bonus, more power to it.
But courts won’t always require consideration for changes made to the employee’s detriment. In Stepaniuk v. Intuit Canada, a recent decision by the Alberta Provincial Court, Justice D.G. Ingram said an employer has to be able to manage its business affairs, something that may involve changing some of the terms of employment.
“Employers must have some leeway so long as the changes do not alter the fundamental terms of the employment such as the employee’s duties, remuneration, hours (and) place of employment,” said Justice Ingram.
When an employer attempts to alter such fundamental terms, consideration comes into play.
What constitutes consideration?
Consideration can be any number of things, and will differ in each case depending on the changes made to the employment contract and the terms it contains.
Stuart Rudner, an employment lawyer with Miller Thomson in Toronto, said more money is the most obvious, and most common, form of consideration.
“That money can be in the form of an increase in salary, in a bonus, stock options, anything that puts more money in the employee’s pocket,” said Rudner.
Exactly how much money is required to constitute consideration is tough to peg, he said. He hasn’t seen any cases where a judge quantified what would be reasonable consideration. But common sense would dictate it would have to be substantive to compensate for the change in the contract. Rudner said he’s never seen anything less than $1,000 in value as consideration and has seen it as high as $20,000.
He’s also seen employers introduce benefit plans, such as drug, dental or vision, in exchange for a new contract. Employers could also offer extra vacation time.
“Or it could be a company car,” he said. “Any type of new benefit could be considered consideration.”
Reasonable notice of the contract change could also constitute consideration, though it can be difficult to peg what a “reasonable” notice period would be for the change.
A promise not to fire
Another form of consideration — likely the most controversial one — is continued employment.
In Watson v. Moore Corp., a 1996 British Columbia Court of Appeal decision, the court said where the employer has no clear intention of dismissing the employee prior to the signing and returning of the contract amendment, the mere refraining at that point from firing the employee does not amount to consideration for the change to the contract.
Justice Marc Rosenberg, of the Ontario Court of Appeal, agreed with that view in Techform Products Ltd. v. Wolda, a 2001 ruling.
“Where there is no clear prior intention to terminate that the employer sets aside, and no promise to refrain from discharging for any period after signing the amendment, it is very difficult to see anything of value flowing from the employee in return for his signature,” he said. “The employer cannot, out of the blue, simply present the employee with an amendment to the employment contract, say ‘sign or you’ll be fired,’ and expect a binding contractual amendment to result without at least an implicit promise (not to fire the employee) for some period of time thereafter.”
Courts have set a pretty high threshold for using continued employment as consideration, said Rudner.
“There has to be evidence the employer intended to dismiss the employee before they signed the new agreement and a tacit agreement not to dismiss them for some reasonable time after,” he said. “It’s not enough to say, ‘I would have fired them if they didn’t sign it.’”
Give employees time
In addition to consideration, employers will also want to give employees adequate time to think about the change in the contract, said Rudner.
“You need to give them time to consider the new offer and get legal advice if they want rather than just putting it under their nose and telling them to sign it,” he said.
Employers should also be careful not to mislead employees in any way, and not try to present any existing rights the employee has as consideration for signing the contract.
