Hiring New Employees? Get ‘em signed up early!

Alan Whyte*
Posted December 15, 2015 Category: Businesses
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In a decision released on November 10, 2015, the Court of Appeal confirmed previous case law relating to the hiring of new employees and the importance of having all of the documentation regarding the employment relationship in place before the employee starts work.

The plaintiff in Holland v. Hostopia.Com Inc. was hired by the company on the basis of a two-page letter of offer which he signed before he commenced work.  That letter did not contain any provision regarding the plaintiff’s severance entitlement in the event of a termination without cause.  Some nine months later, the plaintiff was presented with a six page employment agreement which, among other things, limited his severance entitlement to the ESA minimums.  The employment agreement stated that the consideration for the agreement consisted of “the Employee’s employment by Hostopia and the compensation paid to the Employee from time to time while so employed”.

The plaintiff was terminated about seven years after he started work for Hostopia. He was paid in accordance with the provisions of the employment agreement.

The plaintiff’s action was dismissed at trial.  He appealed to the Court of Appeal and was successful.  On the issue of the enforceability of the employment agreement, the Court found as follows:

  • the letter of offer constituted a complete contract of employment
  • it contained no provisions which limited the plaintiff’s entitlement to reasonable notice of termination under the common law
  • there was no evidence of discussion with the plaintiff about the significant alteration of his severance entitlement from common law to the minimum requirements under the ESA
  • there was no evidence that the plaintiff had agreed to waive his right to common-law severance
  • in any event, the plaintiff had received no consideration for his agreement to limit his severance entitlement to that provided for in the ESA
  • without fresh consideration, the employment agreement could not displace the implied term of reasonable notice in the letter of offer

In the result, the employment agreement was found to be unenforceable and consequently the plaintiff was entitled to common-law severance (8 months in the circumstances).

In its decision, the Court of Appeal confirmed that a promise to perform an existing contract is not consideration.   If an employer wishes to alter the terms and conditions of employment during the employment, it may do so by way of an employment agreement or otherwise, however, it must provide “fresh consideration” in doing so.  Such consideration may be monetary in nature or could consist of an increase in other benefits such as vacation.

At the end of the day, the safest course of action for an employer to take is to have all of the documentation relating to all of the terms and conditions of employment (including severance) signed by the employee before he or she starts work.  In such case, there will be no issue about what the employee agreed to at the beginning of the relationship.  And the employer will be saved a trip to the Ontario of Court of Appeal!

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Alan Whyte*
Posted December 15, 2015 Category: Businesses

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