Legal News

BC Court Reaffirms Requirement for Fresh Consideration for Contract Amendments

Sui v. HungryPanda Tech Ltd., 2024 BCSC 1856 is the latest BC Supreme Court case involving a written employment contract that was deemed unenforceable due to a lack of consideration. In this case, the employer sent the written employment contract after the employee had already accepted an offer communicated by email. Unfortunately, the failure to provide additional consideration for the written contract led to the finding it was not enforceable.

Background

On April 23, 2021, the employer emailed the plaintiff an offer of employment, which included key terms of employment including job title, place of employment, start date, salary, equity entitlements and the probationary period terms. The employee and employer exchanged emails over the following day negotiating the terms of employment. On April 25, 2021, the employer sent the employee an employment agreement containing additional terms not previously discussed in the emails (“Employment Agreement”). The Employment Agreement was signed by both parties that same day.

Approximately 18 months later, the employee was terminated without cause and the employer attempted to rely on the termination clause in the Employment Agreement to limit the employee’s entitlements. The employee argued the Employment Agreement was unenforceable since the prior emails formed a contract and he was not provided any fresh consideration for signing the Employment Agreement which followed.

Court’s Decision Regarding Consideration

The Court agreed with the employee that the email exchange contained the elements necessary to form an employment contract, before the Employment Agreement was presented.

After applying the applicable legal principles, the Court determined the Employment Agreement contained several new terms that were detrimental to the employee, and therefore fresh consideration was required. The employer argued the Employment Agreement provided fresh consideration in the form of group health benefits, a business expense account and paid time off. The Employment Agreement stipulated that the employee would receive “those additional benefits” set out in the employee manual, however there was no mention of the benefits in the employee manual. In addition, there was nothing to suggest the employee would have not received those benefits irrespective of the Employment Agreement.

The court held that the employer failed to establish that consideration was received in exchange for the Employment Agreement terms. The Employment Agreement was therefore unenforceable and the court awarded the employee 6 months damages in lieu of notice.

Key Takeaways

This case provides a “fresh” reminder to employers about the requirement to provide fresh consideration for a contract. It serves as a further caution about the practice of making two-step employment offers (a shorter offer followed by a more detailed written contract) and demonstrates the importance of understanding when a binding contract may already have formed. This is an issue we have discussed previously in a prior article.

When negotiating an offer, employers should keep in mind that a legally binding contract can be formed through less formal communication channels before a more detailed employment contract is even signed. If a binding contract has already been formed (for example, through an email offer that is accepted), new or “fresh” consideration would be required to introduce a more detailed written employment agreement with additional terms.

When amending employment contracts mid-employment, the same principles apply. Something of value, in excess of what the employee is already entitled to receive under their existing contract or under statute, must be provided in exchange for new terms. Otherwise the new contract remains at risk of being deemed unenforceable.

If you have any questions about this article, please contact your Harris lawyer.