An employment contract is the central document that binds both parties, by setting out their legal obligations and responsibilities. When a dispute arises, a judge analyzes the contract to try and determine what the parties agreed to. A contract of employment can exist between parties, even if it has not been reduced to writing. After-all, if the employee is performing work, and the employer is paying for the work, there is an agreement between the parties. Employment relationships that are not reduced to writing are often more favorable to the employee, especially because in most cases, a written contract serves to limit an employee’s entitlements upon termination.
Further, what every employment lawyer can attest to, is that there is no such thing as “employment law” as a separate legal category. There is such a thing as the law of contracts – with all its guiding doctrines and precedents – as it applies to people who are engaged in a contract of employment, or who offer a service in exchange for remuneration (i.e. employees). Courts have slowly shaped and molded the law of contracts as it applies to employment agreements so as to account for the steep imbalance of bargaining power typical of most employer-employee relationships. For this reason, the law of contracts as it applies to employment agreements is not as dogmatic, and often makes exceptions where regular contract law does not. Where ancient legal principles may favor tilting the scales to the employee’s benefit, courts have invoked these principles in clever and ingenious ways to even the affair. A great example of this has been the use of “consideration” and “fresh consideration” to protect employees from fundamental changes to their employment on the employer’s whim.
Consideration and Fresh Consideration
Consideration is the legal term for a benefit that flows to the other party. In order for a contract to be valid and enforceable, each party must receive a benefit, or consideration. Where an employer seeks to change or add new terms to the contract of employment, the employee must receive “fresh” consideration, or a new benefit flowing to him or her that they had not received before. The most common form of fresh consideration flowing to an employee, is a pay raise. Though the concept of consideration dates back centuries, it is central to understanding how to legally define changes to the employment relationship.
Employers Imposing Changes
The same issue arises when employers attempt to impose confidentiality or non-competition agreements after the employee has worked for the company for some time. While employers may feel legally within their right to impose such agreements, courts have steadfastly protected an employee’s contractual right to fresh consideration. In most cases, judges will deem the impugned post-hoc restrictive agreements to be unenforceable because the employee received nothing for signing them beyond that which they were already entitled to. 1
Another example is when employers attempt to limit an employee’s common law notice entitlements during their employment term by imposing renewed employment agreements that invoke statutory minimums of the Employment Standards Act. In Holland v Hostopia 2, Holland was hired by Hostopia pursuant to an offer of employment contained in a two-page letter dated May 13, 2003. The letter said nothing about the appellant’s entitlement to notice of termination. Some nine months later, the appellant was presented with a six-page Employment Agreement, dated February 18, 2004, which he signed on March 8, 2004. The Court of Appeal for Ontario ruled that the Agreement was unenforceable for want of fresh consideration. Without fresh consideration, the Employment Agreement could not displace the implied term of reasonable notice contained in the initial offer letter.