Labour and Employment Law Blog

So you want to have your employees sign new employment agreements? We can help make sure they stay enforceable.

Traditionally, the common law has required that the parties to a contract receive new or “fresh” consideration in order for amendments to their contract to be enforceable.

In the employment context, fresh consideration can take many forms and include a promotion, an increase in wages, a lump sum payment, additional benefits etc… in favour of the employee and in exchange the employer gets the benefit of the new or different terms – such as a change in position, new confidentiality, restrictive covenant or other terms.

Importantly, the fresh consideration must be actually received by the employee and be “fresh”, not something that the employee was going to receive in any event, either by way of legislation or their current employment agreement or new employer policies or procedures.

The concept of fresh consideration is particularly important in the employment context given the propensity for the employment relationship and the employment contract to be changed over time. For example, when a business is sold or someone new is hired in management or HR, we often see a desire to update the company’s employment agreements, including if they are only oral agreements or quite old and outdated.

Updating your employment agreements where appropriate is a prudent step to take but if not done correctly, can end up being a waste of money and not worth the paper it’s written on.

In Rosas v. Toca, 2018 BCCA 191, BC Court of Appeal adopted a new approach to consideration, finding that when parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable.

This was not an employment case, and as a consequence, there remained a question as to whether fresh consideration would still be required when amending an employment agreement.

In the very fresh decision of Sui v HungryPanda Tech Ltd., 2024 BCSC 1856, the BC Supreme Court clearly found that fresh consideration is still required.

In this case, the plaintiff was terminated and brought an action against the employer HungryPanda for wrongful dismissal.

In April 2021, the parties exchanged emails about the plaintiff’s potential employment with HungryPanda. Specifically, HungryPanda sent an offer of employment, which included the position, salary, a six-day working week, probationary period and stock options. It did not, however, include a termination clause.

After some back and forth regarding the salary and stock options, the plaintiff accepted the offer.

Shortly thereafter, HungryPanda sent the plaintiff a written employment agreement, which agreement contained a termination clause limiting his severance entitlements to Employment Standards Act minimums. Both parties signed the agreement that same day.

About a year and half later, the plaintiff was terminated. When the plaintiff commenced an action for wrongful dismissal, the defendant attempted to rely on the termination clause in the employment agreement.

There were two main issues before the court.

First, did the email offer and acceptance create a binding employment agreement? The judge found that it did.

Second, was the written employment agreement binding on the parties? At the center of the second question was whether there was fresh consideration to the plaintiff for entering into the written employment agreement. The Court summarized earlier authorities’ identifying three steps to determine whether, and to what extent, fresh consideration is required when an employment contract is amended.

1. Did the contract contain new terms which were detrimental to the plaintiff?
2. If it did, what is required at law to provide adequate consideration for such changes to the employment relationship?
3. Has the defendant established adequate consideration on the facts?

The last factor is critical. It is on the employer to establish that adequate consideration was provided to the plaintiff. In this case, the defendant argued that the following constituted adequate consideration:

1. Expense account;
2. Paid time off; and
3. Extended benefits for the plaintiff and his family

The judge found that the clauses pertaining to paid time off and the expense account did little more than reflect the statutory minimums set out in the Employment Standards Act. The judge then reviewed the language surrounding the additional benefits and the evidence presented.

The judge ultimately found that the defendant failed to prove that the plaintiff received any material advantage from the written employment agreement and therefore found that the termination clauses were unenforceable. In coming to that conclusion, the judge stated as follows:

[59] Ultimately, it is up to the defendant to demonstrate that consideration passed to the plaintiff in return for his signing of the Employment Agreement. It is not enough to say there were benefits available to the plaintiff, or even that he received benefits, because the entitlement to benefits must be linked to the Employment Agreement. The Employment Agreement promised “only those additional benefits” set out in the defendant’s employee manual, etc., but there is nothing in the employee manual dealing with benefits. The promise is therefore no more than “a thing writ in water”. There is also no admissible evidence to suggest the plaintiff would not have received benefits irrespective of the Employment Agreement.

[emphasis added]

HungryPanda is an excellent reminder that where essential terms of employment are set out in an offer letter or email and the candidate accepts, this may be found to be an enforceable employment agreement even if the employer intended on having the candidate sign a more complete agreement after acceptance.

Further, and while Rosas v. Toca was not cited by the Court in HungryPanda, ensuring that your new or amended employment agreements include adequate fresh consideration is prudent and will assist in ensuring the enforceability of your new or amended agreements.

Please feel free to reach out to our team if you would like assistance reviewing or updating your employment agreements.