The Employee’s Perspective

Imagine coming to work one day and being told by your employer that you have to sign a contract that changes the terms of your employment (for the worse) or be fired. Sounds like a nightmare, right? Can your employer really do this? Like many legal questions, this one has both a yes and no answer.

For a contract to be enforceable, the law requires consideration to pass between the parties. The idea is that a ‘promise’ is not binding unless you have received something in exchange for the promise. The consideration can be almost anything, and because the requirement is easily satisfied, it is easily overlooked.

Suppose that things have not been going well at work. The employer has good reason to fire you, and has been considering whether or not to ’let you go’. At this point, you are offered a new (likely less favourable) contract and are told that you will be let go, but they are willing to give you another chance under different work conditions.  Because you are accepting new terms of employment in exchange for not being fired anyway, you have received consideration for the contract, and it would likely be enforceable.

Suppose though that things have been going well, and the employer has not been considering whether to fire you. You are given a new contract that changes some aspect of your job (for the worse) and told you must sign it. You sign it and keep working. Just keeping the job you already have (and are legally entitled to keep) is not consideration for the new contract, and according to the Ontario Court of Appeal, the new contract might not be enforceable even though you signed it.[1]

Sign this or Lose

 

The Employer’s  Perspective

You have employees you like, and things are going well, BUT things change. For example, your clients have required you to have all of your employees sign a tight confidentiality agreement with a non-compete clause; or your accountant mentions that you need to rearrange payment schedules in order to avoid onerous tax consequences; or you need employees to cover the work of an employee who has left so you require your employees to sign a new agreement.

One problem is that unless you give the employees something new in exchange for signing, the agreement might not be enforceable. Just continuing to be employed is not enough. You will need to give them a signing bonus or promotion, or other form of consideration.

 

Can the Employee Be Required to Sign?

Because every employment situation is different, there is no blanket answer to this question. If the original employment contract is carefully drafted however, the employer can increase the chances that an employee can be required to sign further agreements without triggering a constructive dismissal claim.

One thing the employer can do is to include a clause in the employment contract that anticipates (and possibly describes) possible changes to the employment relationship, and which states that the employee accepts such potential changes.

 

The Bottom Line

If the original employment contract anticipates changes to the terms of employment and requires you to execute further documents; your employer offers you some consideration for signing a new contract; you agree to sign the contract; and you work under the new terms of employment, you will likely be bound by it.

That is of course, unless other circumstances make the contract unenforceable…

 

Takeaways

  • care should be taken not to trigger a ‘constructive dismissal’
  • employers can include language in an employment contract that anticipates future changes to the employment relationship
  • employees should receive Independent Legal Advice before signing, and employers should make sure the employee has had the opportunity to do so
  • when new agreements  are presented to an employee for signing, new consideration must be given such as a promotion or signing bonus

[1] Hobbs v.

TDI Canada Ltd., 2004 CanLII 44783 (ON CA) http://www.canlii.org/en/on/onca/doc/2004/2004canlii44783/2004canlii44783.html?resultIndex=1 Note that this blog does not deal with the difficult question of constructive dismissal.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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