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To Provide Consideration or Not To?

Employment Law

By Brian Vickers

To provide consideration or not to provide consideration: that is the question.

Since time immemorial, three elements have been required to create or vary a binding contract: (1) offer, (2) acceptance, and (3) consideration. In the employment context, an employer offers a job, the job is accepted, and the consideration is the payment for services rendered. If all these elements remain constant, historically, an employer was unable to vary this contract absent “fresh” consideration; usually by providing a raise.

Despite wholesale acceptance within the legal community for what constituted a binding contract, or variation, the Honourable Chief Justice Bauman of our British Columbia Court of Appeal may have changed all of this in his decision Rosas v. Toca, 2018 BCCA 191 (“Rosas”). Although Rosas was not an employment case, Justice Bauman determined that changes to a contract were binding absent fresh consideration:

[4]           In my view that is not the law, or at least not what the law should be for variations of existing contracts. The time has come to reform the doctrine of consideration as it applies in this context, and modify the pre‑existing duty rule, as so many commentators and several courts have suggested. 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. A variation supported by valid consideration may continue to be enforceable for that reason, but a lack of fresh consideration will no longer be determinative. In this way the legitimate expectations of the parties can be protected. To do otherwise would be to let the doctrine of consideration work an injustice.

This decision marks a significant change in the law and may have grave implications on employees. For instance, when a company is purchased by a new owner, the employees generally carry on employment with the new owner. It is common for the new owner to introduce employment contracts with “termination clauses” limiting severance or restrictive covenants such as “non-competition” and “non-solicitation” clauses. Other than the addition of these prohibitive clauses, the employee’s position is usually unchanged. Historically, such clauses lacked fresh consideration and would not be binding. However, such a conclusion is now uncertain.

Although Rosas has yet to be considered by the Court in the employment context, Justice Bauman did make specific reference to defenses such as duress, unconscionability, and other public policy concerns. These caveats will likely continue to afford some level of protection to employees caught in these difficult situations. However, until the Court provides clarity on the application of Rosas to employment contracts, the application of this decision remains opaque. Accordingly, it is prudent for employers to continue providing fresh consideration if they wish to allay concerns in enforcing a variation to an employment contract.

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