What Should You Consider Before Signing an Updated Employment Contract?
What does fresh consideration mean regarding updated employment contracts?
When signing a new employment agreement or amended agreement with the same employer, an employee must receive fresh consideration in exchange for performing services under the contract. Fresh consideration means that the employee is receiving something new in return for his or her promise to be bound to the amended contractual terms added by the employer to the employment agreement.
How do the courts assess fresh consideration in updated employment contracts?
In a recent Court of Appeal case, Giacomodonato v. PearTree Securities Inc., 2024 ONCA 437, the employer hired the employee to serve as its President and Co-Head of Banking. The parties entered into an employment contract in April 2016 and subsequently negotiated a second employment contract in July 2016. The employer ultimately terminated the employee’s contract without cause in January 2018.
The issue at trial was whether the employee’s damages should be calculated based on the terms of the first or second employment contract. The employee argued that the second employment contract was not enforceable as the second contract did not provide fresh consideration in exchange for signing the updated contract. The main differences between the first and second contracts were that the second employment contract was no longer a fixed term contract, expanded the non-competition and non-solicitation obligations on termination, and altered the employee’s compensation structure, which included an additional 2 weeks of vacation and $40,000 in bonus amounts.
The trial judge agreed that employment contracts require fresh consideration as an essential component of an employment relationship. The judge further commented that the courts do not need to evaluate the “adequacy” of the consideration. As long as there is some new consideration for amending the contract, the court will not take into account whether the consideration is adequate to determine whether an employment contract is valid. The trial judge determined that the additional 2 weeks of vacation and $40,000 bonus constituted sufficient consideration and determined that the second employment contract was enforceable. The Court of Appeal upheld the trial judge’s findings and dismissed the employee’s appeal.
Why is it important to have fresh consideration in an amended employment agreement before signing an updated employment contract?
This case demonstrates the importance for employers to provide employees fresh consideration when amending employee contracts. Fresh consideration can include increasing salary, providing a bonus or additional benefits, or increasing vacation time. So long as there is added value in the employment contract, the amended employment contract would be enforceable in court.
How can Whitten and Lublin help?
The decision ultimately serves as a reminder of the importance of providing fresh consideration for employees in order to create a valid, enforceable employment agreement.
If you are an employee who is being asked to sign an amended employment contract or has been terminated from your employment and would like further information regarding the validity of your employment contract, contact us for further information regarding your entitlements online or by phone at (416) 640 2667.
Author – Abby Leung