In a unique set of circumstances, the Ontario Superior Court recently found that changes to an employment contract which benefited an employee were void because the employer did not receive consideration.
The employee in Waddilove v. 1748960 Ontario Limited was terminated without cause from his position as general manager of a casino. The employee argued that the parties were bound by a fixed-term employment contract which guaranteed him employment for seven years, and provided that he would be paid his salary for the entirety of the term if his employment were terminated without cause. The employee claimed that he was owed wages for the remaining four years of his contract.
The casino was a charitable corporation controlled by a board of directors. The employee had worked for the casino previously, but had been terminated. He was later reinstated and promoted to the position of general manager thereafter.
The Court found that, approximately two years after starting as general manager, the employee drafted written employment contracts for himself and other staff. He gave the other employees fixed-term contracts ranging from one to five years. These contracts provided that in the event of termination without cause, the employees were restricted to payment in accordance with the Employment Standards Act. The employee gave himself a seven-year long term contract, removed the restrictive language, and inserted the clause providing for a payout of the entire term in the event he was fired without cause.
The employee’s father was president of the board of directors at the time the written employment contract was signed. His father’s personal friend and an employee of his father’s business were also members of the board at that time, and all three signed off on the contract.
The Court found that the employment contract was void for lack of consideration. It is a general principle of contract law that new or additional consideration, something of value exchanged between the parties, is required to support a variation of an existing agreement. The Court noted that security of tenure would have been extremely important to the employee given his previous termination and the impending changeover of the board members, and found that the employee have provided no fresh consideration to support the seven-year employment guarantee in the contract.
The Court further found that the employee breached his fiduciary duty to the casino, and that the individuals signing the contract breached their respective fiduciary and statutory obligations by signing the contract. By way of a proverbial nail in this coffin, the Court held that the contract was not properly authorized and approved by the board and band council.
Despite this finding, the Court found that the casino did not have just cause to terminate the employee based on the information it had when it dismissed him (the new board did not know about his written employment contract). The casino had failed to employ progressive discipline and to warn the employee that his behavior, including absenteeism and rudeness, was unacceptable. As such, the employee was entitled to 4.5 months’ pay in lieu of notice.
The facts of this case are extremely unique. We more commonly see the courts using the doctrine of consideration to deny employers the ability to enforce restrictive termination clauses imposed after employees have already commenced working. However, the ruling gives employers hope that, if the circumstances were sufficiently extreme and an employee’s behavior egregious, the courts will apply the doctrine of consideration to an employer’s advantage. Organizations should seek expert legal advice before attempting to vary the terms of existing employment agreements in any material way.