Do not forget about fresh consideration.
WHAT IS CONSIDERATION AND FRESH CONSIDERATION?
In the context of contract law, consideration is simply a benefit derived by each party to a contract. This can be a nominal amount (for example, a single dollar), but it is considered essential to the formation of a contract – if you don’t have consideration, you don’t have a binding contract.
Traditionally, the terms of an existing contract could not be amended without the introduction of some “fresh consideration” – some new benefit above and beyond the benefit that was present when the contract was first entered into. Without an exchange of fresh consideration, the modification of an existing contract would not be legally binding – regardless of whether or not the two parties agreed to the variations.
ROSAS v. TOCA, 2018 BCCA 191
In 2018, the B.C. Court of Appeal signaled a change to the existing law on consideration in the context of contract variations by holding that “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.”
Our Court of Appeals’ decision in Rosas left many in the field of Employment Law wondering how the above-noted statement would be applied in the context employment contract variations.
QUACH v. MITRUX SERVICES LTD., 2020 BCCA 25
Our first indication of how B.C. Courts may deal with the Rosas decision in the context of employment law came in 2020, in our Court of Appeal’s decision in Quach v Mitrux Services Ltd. While it is important to note that the Court found it was not necessary to consider the application of Rosas in the case, the Court made comments in its judgment indicating that Rosas may not change the traditional law that requires fresh consideration for variations to employment contracts.
Writing for a unanimous court, the honourable Justice Saunders stated that, in the context of employment contracts, consideration must be reciprocal. For employers, consideration consists of the employee’s services; for employees, consideration consists of pay and other benefits flowing on performance of services [para 12]. The Court confirmed that although employment contracts may be modified, “modification of a pre-existing contract will not be enforced unless there is a further benefit to both parties” [para 13]. That benefit, the decision suggests, is fresh consideration.
APPROACHING FRESH CONSIDERATION PRACTICALLY
Employers can seek to modify/update existing employment contracts but they need to take care to ensure that the employees are receiving a new benefit. Practical ways to ensure there is fresh consideration include timing the contract variation with annual wages increases and promotions, the opportunity to participate in a new health benefits plan or profit share scheme or a contract signing bonus. The employer must take care to make the offer of such new benefit conditional upon the employees agree to and signing the new employment contracts.
The employer must also take care to ensure that existing employees do not receive the new benefit(s) unless and until the new modified employment contracts are signed and returned to the employer.
We recommend that employers seek legal advice when facing decisions regarding new or existing employment contracts. If you have any questions or concerns or are interested in discussing employment contracts and/or updating existing employment contracts, please contact us at (604) 736 9791 or email Alex Robertson ar@dwslaw.ca.
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Disclaimer: This article is not intended to serve as, or should be construed as legal advice, and is only to provide general information. Should you require legal advice for your particular situation, please get in touch with us. The information for this article was compiled on February 28, 2021.