Case In Point
Appeal Court Decision Underscores Importance of Clear Terms of Hire at Outset
Date: November 23, 2015
In a recent decision, Holland v. Hostopia.com. Inc., the Court of Appeal for Ontario found that a termination provision in an employment agreement purporting to limit the appellant’s entitlements upon termination of employment to the statutory minimums under the Employment Standards Act, 2000 (“ESA”) was unenforceable due to lack of consideration.
The appellant had commenced employment with the respondent pursuant to an offer letter. That letter did not contain a termination provision; however, it stated that the appellant would be required to sign a separate employment agreement. Nine months later, the appellant was presented with and signed an employment agreement which contained a termination provision purporting to limit his entitlements upon termination to the statutory minimums. In addition, the employment agreement purported to increase the duration of the non-competition and non-solicitation provisions, which had been outlined in a Code of Business Conduct and Proprietary Rights Agreement that had been presented to the appellant nine months earlier. The appellant was terminated from his employment with the respondent after seven years’ service, found similar work three months later and sued for wrongful dismissal.
The Court of Appeal found that the employee received no consideration for signing the employment agreement, and therefore that it was unenforceable. It found that the trial judge’s conclusion that the offer letter and employment agreement together formed one contract was incorrect. The Court held instead that the employment agreement contained a term inconsistent with the offer letter – namely the amount of reasonable notice (or pay in lieu) that would be provided upon termination of employment. Given that the two documents were inconsistent in at least this respect, they could not be considered one contract:
[49] […] [T]he two documents were not consistent. They differed in at least one very material respect. Once accepted, the Offer Letter constituted a complete contract of employment. The appellant was employed pursuant to the Offer Letter for some nine months before he signed the Employment Agreement. It was an implied term of the Offer Letter that he was entitled to reasonable notice prior to the termination of his employment […]
[50] […] Instead of providing for reasonable notice, [the Employment Agreement] limited the appellant’s entitlement to notice of termination to the statutory minimum set out in the ESA. There was no evidence of any discussion of the subject prior to the appellant’s acceptance of the Offer Letter, no evidence that he was told that the Employment Agreement would contain terms inconsistent with the Offer Letter and no evidence that he agreed to waive his right to reasonable notice of termination when he signed the Offer Letter. Accordingly, the Employment Agreement introduced a new, very material term, into the existing contract of employment – a term to which the appellant had not previously consented and for which he received no consideration.
The Court concluded that, having failed to provide the appellant with fresh consideration for signing the employment agreement, the employer could not rely upon the termination provision contained in it. In other words, the implied term of reasonable notice in the offer letter could not be displaced without the employer providing something of benefit to the appellant in exchange for him signing the employment agreement.
This case serves as an important reminder to employers that, when hiring employees, all terms of employment should be presented to the individual before he or she commences employment. Fresh consideration should also be provided for any new contract(s) or contract amendment(s). Failure to do so may mean those new terms are unenforceable – an outcome the employer may not have contemplated or budgeted for.
