As employers prepare for the cautious reopening of the economy and the gradual return to the physical workplace, questions on altering the terms of an existing employment agreement could certainly arise for a number of legitimate reasons.

Specifically, employers often ask under what circumstances they can make changes to existing employment agreements. Commonly, employers face two important sub-questions in that regard. First, must employers obtain employee consent before making any changes to terms of employment? Second, must employers provide consideration for such changes to make them enforceable at law?

A recent decision from the British Columbia Court of Appeal (“Quach”) [1] zeroes in on these questions, and provides helpful guidance on what employers should (and should not) be doing when considering changes to existing employment contracts.

Considering changes to employment contracts? Employers, keep reading

In contract law, both parties must provide consideration (or something of value) in order to create a binding agreement. In typical employment contracts, the consideration received by the employer is the employee’s services, and the consideration received by the employee is pay and other benefits.

Previously, BC’s Court of Appeal held that variations to contracts can sometimes be enforceable even without new consideration. However, that case took place outside of the employment law context, which is a unique sub-category of contract law.

Today, Quach maintains that BC employers who wish to vary the terms of existing employment contracts should provide employees with fresh consideration in order ensure that such changes are binding.

What happened in Quach

In Quach, the plaintiff signed a one-year fixed-term employment contract with his would-be employer. Before his first day on the job, though, the employer requested that the plaintiff agree to a new month-to-month employment contract to replace the first contract. This second contract was terminable on four weeks’ notice. The plaintiff signed the second contract. The employer then terminated the plaintiff’s employment, and the plaintiff sued for wrongful dismissal.

At issue was whether the second contract was enforceable. If it was, then the plaintiff would only get four weeks’ salary as damages. If it was not, then he would be entitled to the entire year’s term of salary under the original contract.

The plaintiff’s position was that the second contract was unenforceable because he had not received any benefit for signing it. The Court of Appeal agreed. The second contract did not give the plaintiff anything of value that he was not already entitled to under the first contract. As such, the second contract failed and the plaintiff was entitled to damages in the amount of one year’s salary under the first contract.

Take-aways

Quach maintains that consideration is generally required when employers modify an existing employment contract. This is especially the case where more substantive, fundamental changes to an employment contract are being considered. Such was the case in Quach, where the employer unilaterally changed a fixed-term contract to a month-to-month one, with no form of consideration.

Although Quach provides employers with helpful clarity when considering changes to existing employment contracts, the decision does not address whether all changes to employment contracts require consideration. For instance, is fresh consideration flowing to the employee required in the case of smaller, more technical changes to employment? In some jurisdictions, consideration is generally required when an employer makes a “fundamental” change to an employment contract. Whether the courts in BC will follow suit remains to be seen. In the meantime, employers contemplating changes to existing employment contracts should do so with prudence and the assistance of legal counsel.

[1] Quach v Mitrux Services Ltd., 2020 BCCA 25 (“Quach”)

Leave a Reply

Your email address will not be published. Required fields are marked *