In Holland v. Hostopia.com Inc., (2015 ONCA 762) (“Holland”), the Ontario Court of Appeal held that an employment agreement that was executed after the plaintiff commenced work was unenforceable due to a lack of consideration.
In Holland, the plaintiff accepted a written offer of employment dated May 13, 2003. The offer included a requirement to sign an employment agreement at a later date. The offer of employment did not include a termination clause. The plaintiff thereafter began work and in March of 2004, he was presented with an employment agreement. The agreement included a termination clause, which stated that upon termination without cause, the employer would provide to the plaintiff only pay in lieu of notice in accordance with the Employment Standards Act, 2000. The plaintiff signed the agreement and his employment continued until February of 2010, when his employment was terminated on a without cause basis. Upon termination, the plaintiff was provided with “at least the amount of his ESA entitlement to severance and termination pay.” The plaintiff thereafter commenced a wrongful dismissal action, which eventually proceeded to trial.
At trial, the judge rejected the plaintiff’s argument that the employment agreement was void for lack of consideration on the basis that the plaintiff was already bound to the terms of the October 2003 offer of employment. The trial judge found that since the two agreements were interrelated, they constituted a single contract of employment. The judge also found that the two agreements were consistent as they did not negate one another. In support of this decision, the judge found that the offer of employment was presented as the introductory component of a more extensive contract of employment, with the employment agreement to be subsequently signed.
Court of Appeal Decision
The plaintiff appealed the trial court’s decision, and the issue for the Ontario Court of Appeal was whether the termination provision in the employment agreement was enforceable, given that fresh consideration was not provided to the plaintiff at the time of executing the agreement.
The Ontario Court of Appeal reversed the lower court’s decision, finding that the two documents were not consistent. Since the offer of employment did not include a termination provision, the Court held that it was an implied term that the plaintiff was entitled to reasonable notice prior to the termination of his employment. The employment agreement thereafter sought to impose an inconsistent term – the termination clause – without the provision of any consideration to the plaintiff. In the absence of fresh consideration, the Court found that the termination clause was unenforceable, and the plaintiff was entitled to reasonable notice of termination.
When an offer of employment includes a requirement to sign an employment agreement in the future, the agreement will not be enforceable unless fresh consideration is provided to the employee or the terms are entirely consistent with the earlier offer of employment.
This case serves as a reminder that offers of employment/employment agreements/contracts of employment must be signed prior to the employee commencing work. If an employer seeks to provide an agreement or to change a fundamental term of the employment relationship after the employee has already commenced employment, fresh consideration will need to be provided to the employee in order for the agreement to be enforceable.