Going back to the old contract

By Stuart Rudner 

Over the past few years, there has been much discussion of contractual termination clauses and our courts’ ongoing propensity to find fault in such clauses and deem them null and void. In most circumstances where that happens, the parties revert to the common law, which is typically more generous to the employee.

But what happens when there was a previous written contract in place, with a termination clause? 

This issue arose in the recently decided case of Mlotek v. York–Med Systems, which was argued successfully by my law school colleague and friend, Michael Simaan. 

In that case, which was decided by way of summary judgment (link), there were two issues before the court: whether the employee was discriminated against on the basis of her age, and whether the employment contract she signed in 1998 was enforceable. 

With respect to the issue of contract, interestingly, both parties agreed the contract signed in 2011 was not enforceable due to the fact there was absolutely no consideration provided to the plaintiff for her agreement to be bound by its terms and conditions.

However, the parties disagreed with respect to the consequence of that. The plaintiff took the position the 1998 contract was also unenforceable, for a variety of reasons, whereas the defendant sought to rely upon it. 

The plaintiff argued that by entering into the new contract in 2011, the parties had effectively rescinded the previous contract and it was therefore of no force and effect. Among other things, the plaintiff relied upon the fact that the 2011 contract contained a clause indicating that even if some portions of the contract were unenforceable, the rest of the contract would survive.

The court was quite critical of this position, suggesting that it “feels very much like cherry picking and is painfully self-serving." The plaintiff also argued that the termination clause in the 1998 contract was ambiguous, but the court disagreed. 

While the court agreed the parties were under the impression their relationship was governed by the new contract as of 2011, the fact that the 2011 contract was unenforceable did not change the intention of the parties to be bound by a written contract, and since the 2011 contract was unenforceable, the legal relationship would revert to the previous agreement. 

As a result, the court found that the employment relationship continued to be governed by the contract signed in 1998, including the termination provision found therein. Pursuant to that contract, the plaintiff was entitled to 23 weeks of notice of dismissal. The defendant was therefore the successful party and the plaintiff was ordered to pay them $15,000 toward their legal costs. 

In most cases where the enforceability of a termination clause is at issue, the plaintiff is hoping the court will find a way to have the common law requirement of reasonable notice of termination apply. That was precisely what the plaintiff attempted to do in this case.

However, even though the current termination clause, and the employment agreement as a whole, were unenforceable, the defendant in this case was able to argue successfully there was a previous written agreement that remained in force and limited the plaintiff's entitlement to notice of dismissal. 

The case is, of course, a reminder that employment agreements will not be enforceable if the employee is asked to sign without receiving any consideration for her agreement to be bound by the new contract. However, this case also demonstrates what will happen if the unenforceable employment contract was not the first written contract entered into by the parties.