When changing the terms of an employment agreement, clients often ask us what qualifies as sufficient consideration. For example, with the recent Waksdale decision impacting the enforceability of “just cause” termination clauses, many employers have been asking employees to sign amended contracts with a termination clause that is compliant with the Employment Standards Act, 2000. Employers want to know – what is sufficient to give employees in exchange for signing the new contract?
For a prior article about the latest challenges to termination clauses, please see Waksdale 3.0 – Dufault v. Township of Ignace.
a) What is Consideration?
For any contract to be binding, including an amendment to an existing contract, there must be “consideration.” In law school, we were taught that a valuable consideration may consist of some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other. [i] However, consideration does not need to be equal in economic value to the original agreement/promise. In fact, even nominal consideration (e.g. a peppercorn) may suffice.
This should apply in the employment context as well. Employers do not have the right to unilaterally alter a contract unless something “new and beneficial” flows to the employee in exchange for their agreement to the amended terms.[ii] For example, courts have held that continued employment, without more, is not consideration for a new agreement that is disadvantageous to the employee.[iii] An employer is also not entitled to dismiss an employee for refusing to sign a new agreement.
Generally, courts are concerned with the existence, rather than adequacy, of consideration, regardless of whether the contract is a commercial or an employment agreement.[iv] This was recently confirmed in an Ontario Court of Appeal case.
b) Giacomodonato v PearTree Securities Inc., 2024 ONCA 437
Mr. Donato, a successful investment banker, was recruited by PearTree to act as President and co-head of banking in early 2016. The parties entered into the initial employment contract in April 2016, and then a second contract after renegotiations in July 2016. Mr. Donato sued for wrongful dismissal after PearTree terminated his employment without cause in January 2018. While Mr. Donato won the case at trial, he appealed the calculation of damages.[v]
The trial judge found that, during negotiations for the second contract, PearTree offered Mr. Donato $40,000 to cover the costs of leaving his former company – though this was not explicitly referenced in the agreement. Further, the second contract offered additional vacation pay.
On appeal, Mr. Donato argued that the trial judge was required to do a comparative analysis of the advantages and disadvantages between the two contracts in assessing whether there was fresh consideration for the second one. The Court of Appeal rejected this argument as no authority supported the proposition. It also rejected the argument that the trial judge disregarded the power imbalance between the parties. The Court of Appeal noted that the trial judge recognized that consideration is particularly important in the employment context due to the inequality of bargaining power between the parties. Regardless, the Court of Appeal dismissed the appeal as they found fresh consideration in the $40,000 payment and the additional vacation pay.
The Peartree decision supports the idea that it is ultimately up to the parties to decide the subjective worth of consideration; courts merely care that consideration exists. What does this mean for the employer that wants an employee to sign a new contract? The employer should ask themselves what it will take to convince the employee to sign the new contract. The answer is likely something more than a peppercorn.
[i] See Currie v Misa (1875) LR 10 Ex 153.
[ii] See Techform Products Ltd. v. Wolda, (2001), 56 O.R. (3d) 1 (C.A.), at para. 24, leave to appeal refused [2001] S.C.C.A. No. 603; Holland v. Hostopia Inc., 2015 ONCA 762, 392 D.L.R. (4th) 650, at paras. 51-55; Hobbs v. TDI Canada Ltd. (2004), 246 D.L.R. (4th) 43 (Ont. C.A.), at para. 32, citing Francis v. Canadian Imperial Bank of Commerce (1994), 21 O.R. (3d) 75 (C.A.).
[iii] Kohler Canada Co. v Porter, 2002 CarswellOnt 2009.
[iv] See Loranger v. Haines (1921), 50 O.L.R. 268 (C.A.); Stott v. Merit Investment Corp. (1988), 63 O.R. (2d) 545 (C.A.), citing Ronald Elwyn Lister Ltd. v. Dunlop Canada Ltd., [1982] 1 S.C.R. 726.
[v] PearTree also appealed the calculation of costs, which was also dismissed.