Employees should sign employment contracts before the first day of work
Hiring a new employee is often a chaotic process. Employers have a lot of work to do in preparing for the arrival of a new staff member and in that chaos an important task can fall by the wayside: having the employee sign the employment contract before starting.
If the contract isn’t signed before the employee starts, a court may find it unenforceable. Courts have affirmed the notion that there needs to be some sort of incentive (known in legal circles as consideration) given in exchange for signing a contract after employment has begun — even if that contract is signed the same day the employee starts.
In Francis v. Canadian Imperial Bank of Commerce, the Ontario Court of Appeal confirmed the principle that if there is no consideration for an employment contract which has been signed after the date the employee started, the contract is unenforceable. Trusty Francis was terminated without notice by CIBC after eight years. CIBC relied upon an employment agreement signed by the plaintiff which provided for a maximum notice period of three months.
On June 9, 1978, before Francis started working at CIBC, he was given a written offer of employment, conditional only upon the receipt of a satisfactory letter of reference. On June 15 he accepted the offer. The reference letter was supplied. On July 4, he started his first day of work and was asked to sign a number of forms, one of which was the employment agreement containing a termination clause. The court held that prior to July 4 there was a contract of employment between Francis and CIBC which was silent as to the term of notice for dismissal. Therefore, Francis could not be dismissed except upon reasonable notice or payment in lieu thereof.
The notice provision in the employment agreement signed by Francis on July 4, 1978, was not to his advantage. There were no other provisions in the agreement that could be said to be detrimental to CIBC’s interests that could constitute new consideration for this new promise by the plaintiff. The continued employment could not be consideration for the employment agreement since this was something CIBC had already agreed to provide prior to the employment agreement being signed.
In Techform Products Ltd. v Wolda, the Ontario Court of Appeal arrived at a different decision. Tiete Wolda was an employee at Techform from 1981 to 1989, at which time he signed a consultancy agreement and became an independent contractor. Techform was concerned Wolda might seek royalty payments for his inventions and asked him to sign an employee technology agreement. That agreement would assign Techform his rights in any invention he was involved in while operating with the firm. Wolda made it clear he didn’t agree with the employee technology agreement and took the position that it was a “useless piece of paper” because he was not an employee. But he signed it because he feared he would be terminated if he did not.
Contrary to the decision in Francis, but consistent with the principles established in that case, the court determined the employer’s tacit forbearance from terminating the defendant’s services constituted consideration for the agreement and was therefore enforceable. But it is of interest to note that this case related to technological rights rather than termination provisions, which are the pillar of the employment relationship.
The decision handed down in Kohler Canada Co. v. Porter was similar to Francis. In Kohler, the court confirmed the principle articulated in Francis that the agreement must be negotiated and entered into before the employment relationship starts.
When Bradley Porter started working for Kohler in 1988, he was not asked to sign an agreement. But in 2001, without any warning or discussion, he was asked to sign one. Porter didn’t ask for an explanation about the new agreement and none was provided. Nor was he given an opportunity to obtain legal advice. He signed and returned the agreement.
It contained a restrictive covenant pertaining to a non-competition clause. It restricted Porter’s ability to compete in the following manner:
“For a period of one year from the date of termination from my employment (voluntary or involuntary), I agree not to render services directly or indirectly for my own account or any person or corporation in North America in a line of business which is competitive with the line(s) of Kohler’s business in which I work. It is understood, however, that I may accept employment with a diversified company so long as my new employment pertains solely to that part of its business which is not in competition with any business of Kohler.”
Later, Porter quit and gave notice that he would leave Kohler on Feb. 8, 2002. Kohler did not require him to work out the notice period, and Porter started a new job with Mansfield Plumbing Products. Shortly after, Kohler launched a lawsuit against Porter and Mansfield, claiming breach of the non-competition agreement. An injunction was sought to restrain Porter from working for Mansfield during the one-year term of the non-competition restriction.
The judge concluded the contract was not enforceable given that no consideration had passed from Kohler to Porter. Kohler argued Porter’s continued employment was consideration, but the judge disagreed. The judge held Porter was already entitled to continued employment status and payment of his salary under his existing employment relationship with Kohler. Accordingly, the court found the non-competition agreement to be an amendment to the existing employment relationship, and adverse to the employee. The court found the employer was required to give something back to the employee in exchange for this promise. The judge found Porter was significantly disadvantaged by the non-competition clause and without consideration ruled it was unenforceable.
While there were different findings in each of the above decisions, they all illustrate that without anything more of value passing to an existing employee, continued employment is not consideration for new promises which are disadvantageous to the employee. To enforce a written employment contract it must be negotiated and entered into at the start of the employment relationship, not on the day the employment relationship begins or thereafter.
For more information see:
•Francis v. Canadian Imperial Bank of Commerce (1994), 1994 CarswellOnt 995, 7 C.C.E.L. (2d) 1 (Ont. C.A.)
•Techform Products Ltd. v. Wolda (2001), 2001 CarswellOnt 3461, 12 C.C.E.L. (3d) 184, (Ont. C.A.)
•Kohler Canada Co. v. Porter (2002), 2002 CarswellOnt 2009, 17 C.C.E.L. (3d) 274 (Ont. S.C.J.)
Natalie MacDonald is an associate with Grosman, Grosman & Gale, a Toronto-based law firm specializing in employment law. She can be reached at (416) 364-9599 or [email protected].
If the contract isn’t signed before the employee starts, a court may find it unenforceable. Courts have affirmed the notion that there needs to be some sort of incentive (known in legal circles as consideration) given in exchange for signing a contract after employment has begun — even if that contract is signed the same day the employee starts.
In Francis v. Canadian Imperial Bank of Commerce, the Ontario Court of Appeal confirmed the principle that if there is no consideration for an employment contract which has been signed after the date the employee started, the contract is unenforceable. Trusty Francis was terminated without notice by CIBC after eight years. CIBC relied upon an employment agreement signed by the plaintiff which provided for a maximum notice period of three months.
On June 9, 1978, before Francis started working at CIBC, he was given a written offer of employment, conditional only upon the receipt of a satisfactory letter of reference. On June 15 he accepted the offer. The reference letter was supplied. On July 4, he started his first day of work and was asked to sign a number of forms, one of which was the employment agreement containing a termination clause. The court held that prior to July 4 there was a contract of employment between Francis and CIBC which was silent as to the term of notice for dismissal. Therefore, Francis could not be dismissed except upon reasonable notice or payment in lieu thereof.
The notice provision in the employment agreement signed by Francis on July 4, 1978, was not to his advantage. There were no other provisions in the agreement that could be said to be detrimental to CIBC’s interests that could constitute new consideration for this new promise by the plaintiff. The continued employment could not be consideration for the employment agreement since this was something CIBC had already agreed to provide prior to the employment agreement being signed.
In Techform Products Ltd. v Wolda, the Ontario Court of Appeal arrived at a different decision. Tiete Wolda was an employee at Techform from 1981 to 1989, at which time he signed a consultancy agreement and became an independent contractor. Techform was concerned Wolda might seek royalty payments for his inventions and asked him to sign an employee technology agreement. That agreement would assign Techform his rights in any invention he was involved in while operating with the firm. Wolda made it clear he didn’t agree with the employee technology agreement and took the position that it was a “useless piece of paper” because he was not an employee. But he signed it because he feared he would be terminated if he did not.
Contrary to the decision in Francis, but consistent with the principles established in that case, the court determined the employer’s tacit forbearance from terminating the defendant’s services constituted consideration for the agreement and was therefore enforceable. But it is of interest to note that this case related to technological rights rather than termination provisions, which are the pillar of the employment relationship.
The decision handed down in Kohler Canada Co. v. Porter was similar to Francis. In Kohler, the court confirmed the principle articulated in Francis that the agreement must be negotiated and entered into before the employment relationship starts.
When Bradley Porter started working for Kohler in 1988, he was not asked to sign an agreement. But in 2001, without any warning or discussion, he was asked to sign one. Porter didn’t ask for an explanation about the new agreement and none was provided. Nor was he given an opportunity to obtain legal advice. He signed and returned the agreement.
It contained a restrictive covenant pertaining to a non-competition clause. It restricted Porter’s ability to compete in the following manner:
“For a period of one year from the date of termination from my employment (voluntary or involuntary), I agree not to render services directly or indirectly for my own account or any person or corporation in North America in a line of business which is competitive with the line(s) of Kohler’s business in which I work. It is understood, however, that I may accept employment with a diversified company so long as my new employment pertains solely to that part of its business which is not in competition with any business of Kohler.”
Later, Porter quit and gave notice that he would leave Kohler on Feb. 8, 2002. Kohler did not require him to work out the notice period, and Porter started a new job with Mansfield Plumbing Products. Shortly after, Kohler launched a lawsuit against Porter and Mansfield, claiming breach of the non-competition agreement. An injunction was sought to restrain Porter from working for Mansfield during the one-year term of the non-competition restriction.
The judge concluded the contract was not enforceable given that no consideration had passed from Kohler to Porter. Kohler argued Porter’s continued employment was consideration, but the judge disagreed. The judge held Porter was already entitled to continued employment status and payment of his salary under his existing employment relationship with Kohler. Accordingly, the court found the non-competition agreement to be an amendment to the existing employment relationship, and adverse to the employee. The court found the employer was required to give something back to the employee in exchange for this promise. The judge found Porter was significantly disadvantaged by the non-competition clause and without consideration ruled it was unenforceable.
While there were different findings in each of the above decisions, they all illustrate that without anything more of value passing to an existing employee, continued employment is not consideration for new promises which are disadvantageous to the employee. To enforce a written employment contract it must be negotiated and entered into at the start of the employment relationship, not on the day the employment relationship begins or thereafter.
For more information see:
•Francis v. Canadian Imperial Bank of Commerce (1994), 1994 CarswellOnt 995, 7 C.C.E.L. (2d) 1 (Ont. C.A.)
•Techform Products Ltd. v. Wolda (2001), 2001 CarswellOnt 3461, 12 C.C.E.L. (3d) 184, (Ont. C.A.)
•Kohler Canada Co. v. Porter (2002), 2002 CarswellOnt 2009, 17 C.C.E.L. (3d) 274 (Ont. S.C.J.)
Natalie MacDonald is an associate with Grosman, Grosman & Gale, a Toronto-based law firm specializing in employment law. She can be reached at (416) 364-9599 or [email protected].
