Fresh Consideration in Subsequent Employment Contracts
In a recent British Columbia Court of Appeal decision, the court had to determine whether fresh consideration had been provided for the conclusion of a second employment contract between an employer and employee.
The employer and employee had signed two contractual documents.
The first contract (the “Fixed‑Term Contract”) was prepared by a lawyer engaged by the employee to record the employment offer made to him by the employer, accepted by e‑mail on August 7, 2015. The employer and employee signed the Fixed-Term Contract in person on August 25, 2015. The document described a one‑year term of employment from October 1, 2015 to September 30, 2016, at an annual salary of $138,000.
The second contract was entitled “Employment Agreement and Contract Waiver” (the “Second Contract”), which was signed by the parties on September 28, 2015. The employer had sought legal advice regarding the Fixed‑Term Contract, and asked the employee to agree to a month‑to‑month contract in its place. The employee resisted, and, in doing so, also reminded the employer he had not been reimbursed $1,000 for his preparation of the Fixed‑Term Contract. The employer replied that he would reimburse the employee when he started work.
On September 28, 2015, the employer advised the employee that it required a new contract to be in place before the employee started work. By then, the employee had left his previous employment. The employee signed the Second Contract later that same day.
The Second Contract provided for month‑to‑month employment commencing October 1, 2015, terminable upon four weeks’ written notice or payment of one month’s salary in lieu of notice. On the employee’s insistence, it included as a term:
5.6 Any failure to comply the terms [sic] of the Employment Agreement or misrepresentation by the Employer will void this Employment Agreement.
However, on September 30, 2015, the employer repudiated the contract the day before the employment was set to begin.
The employee sued for damages for wrongful dismissal, basing his claim for damages on the Fixed‑Term Contract. The employer, in response, alleged cause and advanced the Second Contract as the operative agreement between the parties.
Lower Court Decision
The lower court judge found for the employee and awarded damages in an amount equal to the total annual salary of $138,000, plus $15,000 in aggravated damages, plus costs.
In his reasons for judgment concerning the operative contract, the judge rejected the employer’s two submissions that the Fixed‑Term Contract was unenforceable by reason of non est factum and because the fixed‑term provision was mistakenly included. The judge accepted the employee’s submissions that the Second Contract failed for lack of fresh consideration. Alternatively, the judge found that the Second Contract was void on the basis that the employer had misrepresented its intentions to employ the employee and had failed to comply with the terms of the Second Contract by not allowing the employee to begin employment on October 1, 2015, both contrary to clause 5.6.
The employer appealed from the order for damages and costs. It contended that the judge erred:
- in finding the $1,000 payable to the employee as reimbursement of legal fees incurred in preparing the Fixed‑Term Contract was not good consideration for the Second Contract;
- in awarding the employee aggravated damages.
Court of Appeal Decision
The court focussed on the issue of consideration. It found that the lower court judge had accurately described the evidence on the issue of whether reimbursement was fresh consideration when he said it was “vague”. The court stated that it was clear that the terms of the Second Contract were not settled when the employer offered to reimburse the employee $1,000. It found it equally clear that the sum of $1,000 was not paid to the employee on signing the contract, or at any later time.
Therefore, the court found that the lower court judge was correct in finding that the employer had not established fresh consideration of $1,000. It stated that the Second Contract was premised upon the cancellation of the Fixed‑Term Contract for consideration, but no consideration was provided.
As a result, the court rejected the first ground of appeal and rejected the employer’s submission that the Second Contract governed the dispute.
However, the court did agree with the employer’s contention that the judge erred in awarding $15,000 as aggravated damages. The court found that there was no indication that the employee’s feeling of strong dismay and anxiety for himself and his family was beyond the “normal distress and hurt feelings” which are not compensable. In fact, the court found that there was considerable evidence that the employee recovered quickly from his loss of the position.
As a result, the court rejected the employer’s appeal, with the exception of setting aside the aggravated damages award.
The Kitchener-Waterloo employment lawyers at Petker Campbell Postnikoff have many years of experience advising non-unionized employees and employers on a variety of workplace issues, including harassment and termination. Our team will walk you through the details of your dispute, advise you on your rights, responsibilities and obligations, and help you understand your options. If your dispute cannot be settled through negotiation, we can represent you through mediation and the court process.
We represent clients throughout southern Ontario, including the communities of Cambridge, Guelph, Elmira, Brantford, Fergus, Elora and the surrounding area. Call 519-886-1204 or contact us online for a consultation.