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How not to create an enforceable employment agreement

Employers cannot simply replace an existing agreement or impose a new one without consideration

By Stuart Rudner

The Ontario Superior Court of Justice recently considered the case of Fasullo v. Investments Hardware Ltd. In her decision, Justice Sanderson confirmed that once a contract has been entered into (whether it’s verbal or written), the employer cannot simply impose a new contract without providing appropriate consideration or notice.  

In Fasullo, the evidence showed Anthony Fasullo applied for the position in question and had several meetings with representatives of Investments Hardware. In May 2007, the essential terms of the relationship had been agreed upon. A contract was subsequently entered into which confirmed those terms.  

Fasullo commenced working on June 18, 2007. On June 20, he was presented with a new contract which was largely the same as the previous one, but added a “termination on notice” clause. The employer tried to argue the new contract simply confirmed the terms that had been agreed upon.”

Representatives of the company gave evidence the parties had discussed the fact that in the event of termination without cause, Fasullo would receive only the minimum payments required by Ontario’s Employment Standards Act. Fasullo denied such a discussion.

Justice Sanderson did not accept this argument, noting that the June 20, 2007, document made no mention of the previous contract or previous discussions that had taken place, and the new contract purported to make the existence of an employment agreement conditional upon acceptance of all the terms, despite the fact Fasullo had already started working.

The court also noted the June 20, 2007, document was signed that very day, presumably without any opportunity for him to obtain legal advice.

The court considered a number of previous judicial decisions relating to the formation of employment agreements and the ability of an employer to impose new terms. Ultimately, it accepted the argument put forward by Fasullo’s counsel, Matthew Fisher (son of Barry Fisher, a well-known employment arbitrator and mediator and author of the Wrongful Dismissal Database) that “if Fasullo received no consideration for signing the June 20, 2007, document, at law the termination on notice clause in it is now void.”

The bottom line for employers is you cannot simply replace an existing agreement or impose a new one after there is already a contract in place. Contracts do not have to be written, and the vast majority of employment contracts consist of terms that were verbally agreed upon (such as position, salary and vacation) as well as a number of terms that are implied by law (including the obligation to provide reasonable notice in the event of dismissal without cause).  

If employers want to have a written agreement in place, which I highly recommend, I suggest they “make the contract the offer.”

In other words, rather than confirming the individual has been hired, will be paid a certain amount and will start on a certain date, and then attempting to have them sign a written agreement later on, the best practice would be to indicate to the applicant the company would like to extend an offer of employment to them in accordance with the terms and conditions set out in a written contract of employment. That contract can either be handed to them or subsequently e-mailed or sent to them.  

The applicant should be given an appropriate amount of time to review the offer and obtain independent legal advice if they choose. It should be clear the parties do not have an employment relationship until the individual has signed the contract and accepted employment in accordance with the terms and conditions set out therein.

If an employer already has an employee and wants to put a new contract into place, the most effective manner of doing so is by providing some new form of consideration.

This can be anything of value: an increase in pay, a one time bonus, additional vacation, etcetera. It is often most convenient and practical to insert a new contract into the relationship when an employee is being offered a promotion. The promotion can be contingent upon execution of the new contract.

If, for whatever reason, an employer would prefer not to provide consideration for the new employment agreement, they can often impose the new agreement by providing sufficient notice. However, the amount of notice required will be the same as the amount of notice that would be required if the employee was going to be dismissed without cause.

Effectively, the employer is terminating the current agreement and offering employment, after the date of termination, pursuant to the new terms and conditions. While some cases, such as Wronko v. Western Inventory Service Ltd., suggest this may not be appropriate in all circumstances, it is generally a sound approach.

Stuart Rudner is a partner in the Labour & Employment Law Group of Miller Thomson LLP, a national law firm. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is author of You’re Fired: Just Cause for Dismissal in Canada, published by Carswell. He can be reached at (905) 415-6767 or srudner@millerthomson.com. You can also follow him on Twitter @CanadianHRLaw and join his Canadian Employment Law Group on LinkedIn.

Stuart Rudner

Stuart Rudner is a founding partner of Rudner MacDonald LLP in Toronto. Follow him on Twitter @CanadianHRLaw. He can be reached at srudner@rudnermacdonald.com.
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