The Ontario Court of Appeal, in Holland v. Hostopia.com Inc., 2015 ONCA 762 (CanLII) (Holland), recently confirm its position on an issue that is frequently brought to our attention: whether an employer can rely on the terms of an employment agreement that is entered into mid-employment. The answer, in short, is yes . . . but only if the employer provides fresh consideration for any new and material terms of employment. 

Mr. Holland was hired by Hostopia.com (Hostopia) pursuant to an offer letter dated May 13, 2003 (the Offer Letter). The Offer Letter contained general terms of employment such as salary, benefits and vacation but it did not include any termination provisions. The Offer Letter also indicated that it could be accepted by Mr. Holland’s signature and “the subsequent signing of an employment agreement.” Mr. Holland signed and returned the Offer Letter and commenced employment with Hostopia.

Nine months into his employment, Mr. Holland was presented with a six-page employment agreement which he executed and returned (the Employment Agreement). The Employment Agreement indicated that it was being made “in consideration of [Mr. Holland’s] employment by Hostopia and the compensation paid to [him] from time to time while so employed.” The Employment Agreement also contained a clause allowing Hostopia to terminate Mr. Holland on a without cause basis by providing him with pay in lieu of notice in accordance with the Employment Standards Act, 2000 (the ESA).

On February 28, 2010 Hostopia terminated Mr. Holland’s employment on a without cause basis. Relying on the Employment Agreement, Hostopia provided Mr. Holland with his ESA minimum entitlements. Mr. Holland subsequently initiated a claim, arguing that the Employment Agreement was not enforceable due to a lack of consideration.

Trial Decision

Mr. Holland was initially unsuccessful at trial on the issue of the enforceability of the Employment Agreement. The trial judge found that the Offer Letter and Employment Agreement were “interrelated” and together constituted a single, enforceable contract of employment in respect of which consideration had been given when Mr. Holland accepted the Offer Letter. The trial judge further concluded that both agreements were consistent and that neither one negated the other. Mr. Holland appealed this decision, along with several other issues that were also raised in the claim.

Court of Appeal Decision

Chief Justice Strathy, writing for the Court of Appeal, overturned the trial judge’s decision on the enforceability of the Employment Agreement. He found that the Offer Letter and Employment Agreement were not consistent. More specifically, the Offer Letter was silent on Mr. Holland’s termination entitlements and as such, contained an implied term that he was entitled to reasonable notice of his termination at common law. The Employment Agreement, in contrast, purported to limit Mr. Holland’s entitlements upon to termination without cause to the statutory minimums required to be provided in accordance with the ESA. Chief Justice Strathy also drew attention to the fact that prior to acceptance of the Offer Letter, there was no evidence of any discussions between Hostopia and Mr. Holland as to any new terms to be contained in the Employment Agreement. There was also no evidence that at the time he executed the Offer Letter, Mr. Holland agreed to waive his right to reasonable notice of termination.

In light of the above, Chief Justice Strathy concluded that the Employment Agreement introduced a new, “very material” term into the existing contract of employment to which Mr. Holland had not consented and with respect to which he did not receive fresh consideration. In the circumstances, the Employment Agreement was found to be unenforceable. Mr. Holland was ultimately found to be entitled to eight months’ pay in lieu of notice at common law.

Our Thoughts

Circumstances in which an employer seeks to introduce new terms and conditions of employment, particularly termination provisions and restrictive covenants, often pose a challenge. This issue frequently comes to our attention when, similar to the situation in Holland, an employer has provided an employee with a short form offer letter and wishes to follow up with a more fulsome employment agreement. Holland underscores that fresh consideration will be required in order to enforce an employment agreement that is entered into mid-employment and contains new and material terms.