In British Columbia, employers frequently revise employment agreements to reflect evolving roles and responsibilities, or compensation structures. However, one critical legal principle often overlooked in this process is the requirement for fresh consideration. Without it, employers risk having their updated agreements declared unenforceable, a mistake that can be costly in employment litigation.
What Is “Consideration”?
At its core, “consideration” refers to something of value exchanged between parties entering into a contract. In the employment context, this usually means offering the employee something new, such as a promotion, raise, signing bonus, or new benefits, in exchange for their agreement to new or updated contract terms. “Fresh consideration” is simply a further exchange of value if you intend to change a pre-existing contractual relationship.
Fresh consideration becomes particularly important when:
- An employee signs a contract after having already started work; or
- An employer attempts to change an existing employment agreement.
Without fresh consideration, the courts may treat the contract signed after work has already started, or the new terms an employer sought to add to an existing employment agreement, as unenforceable for lack of fresh consideration.
British Columbia Courts have consistently emphasized the need for fresh consideration and while contractual variations can occur without fresh consideration in certain circumstances, employment law remains a distinct category, largely because of the inherent power imbalance in the employment relationship.
A Common Pitfall: Probationary or Termination Clauses
Many employers have faced the consequences of varying employment agreements without fresh consideration in wrongful dismissal litigation. In cases where employers have relied on termination clauses introduced or amended after the employee started work without fresh consideration being provided, these clauses may be struck down, and the employee may then be entitled to common law reasonable notice, which can be significantly more generous than what is provided under many employment agreements.
Best Practices for Employers
To ensure enforceability and reduce the risk of future disputes, employers in British Columbia should:
- Provide contracts before employment begins: Ideally, provide the agreement before the employee’s first day and allow them reasonable time to review it.
- Offer something of value when changing terms: If you’re asking an employee to sign a new or revised agreement, provide fresh consideration such as a raise, bonus, promotion, or added vacation.
- Document the consideration: Clearly outline in the agreement what the fresh consideration is. Courts will look for objective evidence that the employee received something tangible and new in exchange for altering the contractual relationship.
- Avoid “continued employment” as consideration: While once accepted in some jurisdictions, continued employment is not likely to satisfy the consideration requirement in B.C., particularly where there’s a risk of coercion or an imbalance of power, perceived or otherwise.
- Seek legal advice before implementing changes: Minor missteps can have significant legal consequences. Obtaining legal guidance prior to taking any action helps ensure the enforceability of employment agreements under the law.
Experienced Employment Lawyers
Fresh consideration is not just a technicality, it is a cornerstone of enforceable contract law in the employment context. Employers who fail to provide it when implementing new or revised agreements risk losing the benefit of those terms entirely.
If you are an employer looking to vary existing employment agreements or seeking to have your hiring process reviewed by experienced employment lawyers, contact the lawyers at Taylor & Blair LLP today to schedule a consultation.