Lack of Consideration in Employment Contract

Another closely related problem is that companies often transfer employees from one related entity to another without thinking about contractual formalities. As noted in Cavaliere v. Corvex Manufacturing Ltd., a termination clause that may consist of a contract between an employee and a particular company cannot be used to protect a related company. In March 2005, Ms. Theberge-Lindsay resigned with effect from 7 July 2005. Around May 2005, she told Dr. Kutcher that she intended to remain employed in her dental office after ending her engagement, which led to her resignation. In court, Ms. Theberge-Lindsay testified that Dr. Kutcher told her he was happy for her to stay. However, Dr.

Kutcher submitted a new employment contract to her on June 30, 2005, which she later signed. This agreement also limited their right to the legal minimum in the event of termination without notice. Often, corporate practitioners are faced with the situation where requests for “appropriate” employment records are made by a third party, para. B example an investor or a potential buyer. In such cases, practitioners are well advised to explicitly check the availability of a third party`s counterparty and to ensure that the existence of such a situation is expressly stated in the recitals of any working document. The Ontario Court of Appeal recently reinstated a termination clause that a motion judge dismissed as invalid for lack of consideration. In practice, employment contracts should contain explicit references to all policies considered contractually relevant. These guidelines should be made available to a candidate at the same time as each job offer and should be explicitly cross-referenced and incorporated by reference into the terms and conditions of employment. An excellent technique that has been adapted by some HR departments is to require that part of the offer include the summary of the company`s policies and a confirmation in the contract document that the employee: We have reviewed all contracts that say something that a laid-off employee receives “x weeks of notice per year of service or compensation instead”.

The difficulty is that “compensation instead” is often not adequately defined. Employees often benefit from a compensation plan that includes: The employee has signed the agreement with NewCorp. He did not receive compensation for entering into the employment contract, nor did he receive a salary from his former employer OldCorp instead of severance or severance pay. OldCorp confirmed that his employment would end in about three months and that the employee had accepted an offer of employment with NewCorp. Ten and a half months after joining NewCorp, it fired the employee without giving reasons and attempted to invoke the termination clause of the contract. While this may be less of a “misnomer” than a procedural error, the most common technique used by employees to avoid the scope and scope of an employment contract is that the agreement is not supported by “consideration.” The consideration is the simple legal principle that each contracting party must give and receive something in order to make a contract binding. In hobbs v. TDI Canada Ltd.[3] of the Ontario Court of Appeal, the applicant Hobbs was an experienced advertising salesman who accepted a position with TDI Canada Ltd. (“TDI”). Prior to its launch date, there was a verbal agreement between Hobbs and TDI on the commission rates Hobbs should receive. Shortly after Hobbs took office, he received a non-negotiable lawyer`s agreement.

The lawyer`s agreement provided for a more restrictive commission rate than previously agreed. In addition, the lawyer`s agreement allowed TDI to revise the commission rate at its sole discretion. Hobbs then signed the document, otherwise he would not receive any payment. Over time, Hobbs did not receive the commissions he believed were due to him; therefore, he resigned from the company and sued TDI for the unpaid commissions. Subsequently, Mr. Singh received another letter of the same day under the title “Confirmation of Offer – Regional Director, Vancouver Bayshore”. This letter confirmed specific details of Mr. Singh`s employment regarding his salary and the fact that the initial term would be 2 years. Mr Singh held that employment for five months before the conclusion of the employment contract. This agreement contained a termination clause stating that “termination shall take effect at the end of the reasonable notice period in accordance with applicable provincial laws.” In November 2012, Mr. Singh`s position was fired and he was fired.

Mr. Singh then brought an action for damages against the employer for the remaining ten months of the two-year term. The employer argued that under the Employment Standards Act, the contract could be terminated with two weeks` notice. The employee in Krishnamoorthy v. Olympus Canada Inc. worked for a company that sold photographic equipment (“OldCorp”). A new company (“NewCorp”) purchased some, but not all, of OldCorp`s assets and offered employment to OldCorp employees. NewCorp offered the employee in question a written employment contract that was substantially similar to his previous contract, with a few exceptions. The Ontario Court of Appeal`s decision in Theberge-Lindsay v. 3395022 Canada Inc. reminds us that job retention is not in itself a valid consideration. The Court also considers a new question: is there a valid examination if the new agreement follows the dismissal of the employee, even if the dismissal is lifted before its entry into force? The Court held that reinstatement in this context is a valid consideration.

The court also confirmed that the change of entity to serve as an employer does not affect the employee`s service if the actual employer remains the same. [35] In Techform Products Ltd., Rosenberg J. also recognized that a new consideration was required to amend an existing contract of employment. He stated in paragraph 24: The courts have concluded that, in such cases, the “layer” of the original agreement does not exist and that the contractual terms of the original agreement are unenforceable. Employment contracts should be regularly reviewed and revised. Courts have consistently determined that a contract is not maintained or performed unless it reflects the reality of the employment relationship, i.e., the employee`s current position. Promotions, geographic transfers, or significant changes to an employee`s responsibilities were all found to be dissolving the original “substrate” of the agreement. It should be noted that the duration of employment alone does not render the agreement obsolete if the position and responsibilities remain static over the years.

The Trial Court found that Ms. Theberge-Lindsay had 19 years of uninterrupted service and that each of the employment contracts she had signed was unenforceable, since the offer to maintain employment did not in itself constitute valid consideration. The trial judge found that Ms. Theberge-Lindsay had been wrongly dismissed and was entitled to 15 months` damages within a reasonable time. While my previous comments have focused on areas where the lack of attention to the Employment Standards Act, 2000 has caused difficulties, an equally common mistake is to assume that the legislation addresses the issue and eliminates the need for specific language. The need for reflection in support of an amended agreement is particularly important in the context of employment, where there is usually an inequality of bargaining power between workers and employers. Some workers may have some bargaining power in negotiating potential terms and conditions of employment, but once they have been hired and are dependent on the remuneration of the new job, they become more vulnerable. Consultants should consider including anti-obsolescence language in their agreements, in particular with regard to provisions that may be contentious, such as termination clauses or restrictive agreements. A model clause could be formulated in such a way that “the terms of this Agreement govern the parties, regardless of the duration of employment or changes in the employee`s position, compensation and title, and whether or not such change is material.” Traditionally, the court has held that the right to continued employment was a sufficient consideration to ensure the applicability of a written agreement entered into after the commencement of employment.

On occasion, the courts have held that if an employer has the legal right to terminate the employment relationship, the employer`s decision not to exercise the right to dismiss the employee is a sufficient consideration for the applicability of the agreement. The basic legal relationship between the employer and the employee is a contractual relationship. As lawyers, we encourage our clients to enter into written agreements to avoid misunderstandings and disagreements about what the parties intend to do. Despite these good intentions, case law is replete with examples of written agreements where the parties have radically different interpretations of their respective rights. The purpose of this document is to describe the twelve most common avoidable formulation errors and to suggest possible “corrections” if an error has occurred. Another common problem is the use of a number of fixed-term contracts, some of which are subject to an “automatic renewal clause”. .