Changes to oral contract

Making changes when there is no written contract in place

Tim Mitchell

Question: If a job applicant accepts a written job offer that isn’t signed, can any changes be made for the formal employment contract to be signed before the applicant starts work? Which document has precedence?

Answer: A contract arises when there is an offer and an acceptance of that offer, consideration flowing between the parties and terms that are sufficiently certain to allow enforcement.

Typically, the contract is complete when the acceptance of the offer is communicated to the offeror. Accordingly, once the job applicant indicates to the prospective employer that she agrees to the terms of the unsigned offer, an employment relationship will normally have been created. The required consideration for the contract is the mutual exchange of promises, with the prospective employee offering to provide services to the employer and the prospective employer offering to pay for those services.

The fact that the offer was not signed has no significance as far as the formation of the employment contract is concerned. There is no legal requirement for an offer to be signed or for an employment contract itself to be in writing (subject to such statutes as the Statute of Frauds, where the absence of writing may have consequences in relation to specific types of contracts).

Where an employment contract has been concluded, fresh consideration is necessary to support changes to it. An undertaking to perform obligations that a contracting party is already obliged to perform is not normally sufficient, although case law does reveal some uncertainty in this area. For example, the employee to a concluded contract could not promise to show up for work as consideration for a salary increase; she has already promised that under the original bargain. Conversely, an employer could not promise to go through with the hiring only if the employee agreed to a formal contract on changed terms. Again, the employer is already obliged to hire the employee and reneging would be a breach of that obligation. In such a case, the original terms would take precedence as they would reflect the concluded bargain between the parties.

However, this may not be the case if the original contract was conditional. This may occur when the parties did not intend for the contract to take effect unless and until the happening of some future event or when the bargain itself contemplates some act of performance, such as entry into a formal agreement.

In the former case, a bargain may not yet have arisen if the contemplated event has not occurred. In Ross v. Christian & Timbers Inc., for example, the offer letter expressly stated that employment was conditional upon the employee executing a formal contract. The court found that no employment contract had been formed despite the fact that the employee had worked for several weeks because the formal document had never been executed. Thus, if no contract exists at the time new terms are proposed for embodiment in a formal contract, there is no obligation on either party to go through with the hiring if those terms are not acceptable. The tendering of a formal contract in such circumstances would likely constitute a new offer.

In Ross, the relevant inquiry before changes can be made is whether the parties intended the terms of employment to be determined in the formal written contract. The applicable principles have been applied in a number of cases involving changes proposed at or after the commencement of employment.

In Francis v. Canadian Imperial Bank of Commerce, the bank extended an offer of employment that contained a single condition — receipt of satisfactory references. An “employment agreement” was presented to the employee on his first day of employment, several weeks after the offer of employment had been accepted, along with other forms and documents. The agreement purported to limit the plaintiff to one month’s notice per completed year of service up to three months maximum. The employer unsuccessfully sought to rely on this provision when the plaintiff claimed entitlement to reasonable notice of termination.

The court found the notice provision was void as it constituted a unilateral variation of the employment contract unsupported by consideration. The essential terms of the employment contract had been determined when the offer of employment was accepted and the satisfactory reference was received. A reference in the offer letter to the plaintiff “reporting for documentation” on the first day of work was a mere formality — it did not imply the terms of the employment contract would be defined or altered in any significant way at that time.

In Hobbs v. TDI Canada Ltd., the employee had accepted a sales position and was in his second week of work when he was required to sign a “solicitor’s agreement.” Among other things, the agreement changed the commission rates that had been previously agreed upon. The employee left his employment following a dispute over remuneration and sued, seeking unpaid commissions and damages for constructive dismissal. The trial judge found the solicitor’s agreement to be enforceable but the Ontario Court of Appeal disagreed, holding that the law did not permit employers to present employees with changed terms of employment, threaten to fire them if they did not agree and then rely on the continued employment relationship as the consideration for the new terms. Had the employer wanted to bind new employees to its standard form agreement, it was open to the employer to have made the employment offer conditional on the prospective employee’s acceptance of that agreement, a copy of which could have been enclosed with the offer letter.

In Singh v. Empire Life Ins. Co., the employer attempted to make its employment offer contingent upon a formal contract. However, it failed to do so effectively as the terms of the contract were not disclosed and it was not forthcoming in an expeditious manner. The employee had been offered a position and been given a handwritten “letter of comfort” that expressly contemplated that a formal offer and contract would follow. On the day he started work, he was provided with a “confirmation of offer.” This was said to be for clarification purposes only, and again expressly contemplated a “forthcoming Manager’s Agreement which is the contract between you and Empire Life.”

He was finally asked to execute a regional manager’s agreement after he had been at work for five months. The agreement was a standard form document containing a number of disadvantageous terms never discussed with the employee and an “entire agreement” clause. When the agreement was signed, the employee was not offered a promotion, new job opportunity or any other advantage. It was held that the evidence did not support a conclusion that the offer had been made conditional on a formal contract. The written agreement was unsupported by any consideration and was unenforceable.

In Krieser v. Active Chemicals Ltd., the employer characterized the formal agreement as the culmination of ongoing negotiations for the contractual terms. The employee accepted the employer’s offer of employment one week, started work the following week and was presented with a written agreement a few days later. The agreement contained terms addressing both parties’ rights to terminate the relationship and governing intellectual property rights, confidentiality and competition following termination. The contract was said to supersede any former agreements between the parties and stated: “in consideration of the employer employing the employee and the consideration of the mutual agreements hereinafter set forth, the parties hereto agree that the employee’s employment will be subject to the following conditions.”

The evidence showed the employee knew his continued employment was dependent upon signing the contract and the employer would have dismissed him had he not signed. Nevertheless, the employee was not bound by the new terms that were detrimental to him.

Again, the court rejected the employer’s argument that the employee’s continued employment was the necessary consideration for the additional terms. The employer had commenced his employment on the understanding that a number of matters would be governed by the common law. The written contract placed new restrictions on the plaintiff’s pre-existing common law rights and these new restrictions were all to the employer’s benefit. The evidence did not reveal any contract negotiations between the parties after the initial offer and before the presentation of the written contract, nor did it provide a basis to infer that the employee ought to have expected a written contract establishing and altering the terms of his employment.

As these cases indicate, the answer to the question posed above can only be determined by reference to the parties’ intention as reflected in their agreement. If, for example, the unsigned offer accepted by the prospective employee contained language stating that it was “subject to execution of a formal written contract of employment in the form attaché,” the employee would be bound by that document.

If one or both of the parties to an agreement wish to preserve a right to alter or add terms in a subsequent formal agreement, they should do so by making their offer (or their acceptance) clearly conditional upon the other party agreeing to accept those new terms.

For more information see:

Ross v. Christian & Timbers Inc., 2002 CarswellOnt 1453 (Ont. S.C.J.).
Francis v. Canadian Imperial Bank of Commerce, 1994 CarswellOnt 995 (Ont. C.A.).
Hobbs v. TDI Canada Ltd. (2004), 246 DLR (4th) 43 (Ont. C.A.).
Singh v. Empire Life Insurance Co./Empire cie d'Assurance-vie, 2002 CarswellBC 1893 (B.C. C.A.).
Krieser v. Active Chemicals Ltd., 2005 CarswellBC 2241 (B.C. S.C.).

Tim Mitchell is a partner with Armstrong Management Lawyers in Calgary who practices employment and labour law. He can be reached at T.Mitchell@amllawyers.com.

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