Employers have long been advised to ensure that a new employee agrees to and executes his or her written employment contract before starting work. Otherwise, there is a risk that the employment contract will be held to be unenforceable on the basis that there was no “consideration” provided to the employee in exchange for entering into it. Usually the “consideration” (meaning something of value exchanged between the parties) to the employee is the employment itself. Courts have held, however, if an employee is already employed, the continued employment itself will not be sufficient consideration. Something more must be provided.
The issue of whether an employment contract was enforceable based, in part, on when it had been signed by the employee arose in a recent Ontario Court of Appeal decision. In that case, the employee (“Wood”) was offered and accepted employment over the phone. She was then sent an email outlining the terms of her employment. About a week later, Wood started work. A day later, she signed the employment contract. After being dismissed without cause a number of years later, Wood brought a wrongful dismissal action. As part of this action, she alleged that her employment contract (including the termination clause that limited her entitlements upon dismissal) was unenforceable due to a lack of consideration because it had been signed after she started working.
The Court disagreed. In upholding the motions judge’s decision on the issue, Justice Laskin stated that “a written employment agreement is not unenforceable merely because the employee signs it after starting to work…[It] might well be unenforceable if an employer includes in it a material term that was not part of the original employment relationship… But [the Respondent] did not do so.” (Wood was ultimately successful in having the termination clause of the employment contract voided on other grounds.)
Importantly, the judge below had inferred that the terms of Wood’s employment were contained in the email that she received the email before she started working and Wood had never claimed that she saw the employment contract for the first time only after starting work. Further, she did not claim that the contract she signed contained any additional material term. As the employer had not unilaterally imposed a new term of her employment, fresh consideration was not required.
Caution must be exercised in interpreting this decision too broadly. Ultimately, this case turned on its facts. Employers remain well-advised to have an employee sign on the dotted line before actually commencing work to mitigate the risk of such a contract being found unenforceable for lack of consideration.
Written with the assistance of Kara Forrest, Articling Student.