Can Employer Force Employee to Sign a New Employment Contract to Avoid Constructive Dismissal Claim?
Updated: Sep 8, 2021
Can Employer Force Employee to Sign a New Employment Contract? If I have signed the new employment contract in fear of getting fired, what's the impact on my legal entitlements if I am contemplating of suing my employer for constructive dismissal or wrongful dismissal?
Topics Will be Covered in This Post:
1. What Constitutes A Valid Contract?
Any contract must have the following elements in order to be legally enforceable:
a) An offer;
b) An acceptance of the offer; and,
When a new contract was formed, there's never any question of offer (job offer), acceptance (employee accepted the job), and consideration (the salary and other benefits that comes with the employment.
Questions arise when an employer attempts to amend the existing conditions without valid consideration. Sufficient consideration is "value bargained for in exchange".
The courts have ruled that the following are sufficient consideration provided to an employee that validates a new employment contract:
- an offer of employment from a new company taking over the old one for a substantially similar position (see e.g. Krishnamoorthy v. Olympus Canada Inc., 2017 ONCA 873)
The courts have ruled that the following DOES NOT provide an employee with sufficient consideration:
- a promise to fulfill an existing agreement (see e.g. Holland v. Hostopia Inc., 2015 ONCA 762)
- employee forced to sign a new employment contract in exchange for not being terminated immediately, whereas the new agreement DID NOT provide the employee with ANY added benefit not already bargained for in the original employment agreement (see e.g. Hobbs v. TDI Canada Ltd., 2004 CanLII 44783)
2. What Are Employee's Option When They Are Presented With A New Employment Contract?
According to Wronko v. Western Inventory Service Ltd., 2008 ONCA 327, when an Employer attempts to unilaterally amend the fundamental terms of an employment agreement, the employees have three options:
1. [T]he employee may accept the change in the terms of employment, either expressly or implicitly through apparent acquiescence [by not voicing the opposition], in which case the employment will continue under the altered terms. [Wronko, para. 34]
3. [T]he employee may make it clear to the employer that he or she is rejecting the new term. The employer may respond to this rejection by terminating the employee with proper notice and offering re-employment on the new terms. If the employer does not take this course and permits the employee to continue to fulfill his or her job requirements, then the employee is entitled to insist on adherence to the terms of the original contract. [Wronko, para. 36]
In other words, an employee who failed to quit and sue for constructive dismissal (option 2 above) or voiced his rejection and insistence on working under existing contract terms (option 3 above) is deemed to have acquiesced to the changes (option 1 above) assuming that the "new contract" is valid.
3. Can An Employee Sues for Constructive Dismissal if He or She Has Accepted the Amended Contractual Terms?
If an employee has accepted the amended terms in an employment contract (option 1 above) , either explicitly by signing the new employment contract or implicitly by acquiescence, he or she is barred from suing for constructive dismissal especially when reasonable notice was provided for and that the employee has the options to 1) accept reasonable notice in lieu of continue employment under the new terms or 2) accept the amended terms and be "re-employed" by the employer.
This is best illustrated by Lancia v. Park Dentistry, 2018 ONSC 751.
The employee (Lancia) had worked for Park Dentistry and its predecessor for approximately 19 years. Dr. Park (the employer) eventually decided to amend the employment agreement which, among other things, would significantly reduce the vacation pay of his employees.
Dr. Park presented Lancia with a new employment contract on August 14, 2014, with a signing bonus of $2,000 if she would sign the New Contract by September 19, 2014.
Dr. Park provided Lancia with two options:
To Accept the new employment contract, or;
To be terminated after the old contract expires on February 14, 2016 and be provided with a severance package of eighteen months working notice, in light of her age, position and years of service.
The employee signed the new employment contract on August 16, 2014. At the time of signing, Lancia hasn't voiced any objection regarding the reduction of the vacation pay. Lancia resigned on February 9, 2016 and sue for constructive dismissal.
It is settled law that an employer may transition an employee to a new contract without consideration by providing reasonable notice. In Farber [1997 CanLII 387 (SCC)] , the Supreme Court of Canada made it clear that reasonable notice vitiates the concept of termination. The Divisional Court recently confirmed in Kafka v. Allstate Insurance Company of Canada  ONSC 1035 at para. 45, that, “a fundamental change does not amount to a constructive dismissal where the employer provides the employee with reasonable notice of the change.”
4. Employee's Consent vs. Sufficient Consideration
Although gaining workers' agreement to fundamental amendments may help to prevent future claims of constructive dismissal, the legal enforceability of the change as part of the employment contract – is a completely different legal issue.
The need for “sufficient consideration” has long been recognized as a prerequisite for the enforceability of contractual amendments. A recent judgement of the Ontario Court of Appeal, Holland v. Hostopia Inc. mentioned above, exemplifies the ramifications of unilaterally changing key provisions of an existing employment contract. In that case, the Ontario Court of Appeal reiterated the need for “sufficient consideration” when employers purport to amend employment agreements and introduce new material terms.
The million dollar issue then becomes whether or not there is a requirement for "sufficient consideration" if an employee signs the new contract amendment, or acquiesced to it, without any protest or anything NEW in the new contract amendment that isn't previously bargained for in the old existing contract?
Based on recent legal jurisprudence there seems to be a consistent legal trend that in a wrongful dismissal case, the ONLY contractual amendments to be considered are those that have i) an offer; ii) an acceptance; iii) with sufficient consideration.
Fasullo v. Investments Hardware Ltd., 2012 ONSC 2809
In Fasullo v. Investments Hardware Ltd., 2012 ONSC 2809, the Court drew a clear distinction between i) avoiding employee claims for constructive dismissal as a consequence of the contract amendment, and (ii) the employer relying on the amendment in wrongful dismissal proceedings. In the latter case, the Court held that employer must always provide “sufficient consideration” when seeking a substantive change detrimental to the employee.
Kohler Canada Co. v. Porter, 2002 CanLII 49614
He was presented with an employment agreement and asked to sign it after 13 years of services for the business.
The new agreement contained a non-competition provision that specified that the employee may not work for a rival anywhere in North America for one year after termination. The employer attempted to argue that sufficient consideration was given to the new contract since the oral employment arrangements and payment terms were reduced to writing, and thus would give the employee a better sense of job securities.
The Ontario Superior Court of Justice held that the new contract amendment of non-competition provision is not enforceable for lack of consideration. In reach it's decision, the Court held at para. 31 that “[c]ontinued employment, without anything more of value passing to an existing employee, is not consideration for a new promise disadvantageous to the employee.”
To sum up, an employer is NOT allowed to force an employee to accept contract amendments without sufficient consideration (value bargained for in exchange of accepting the new contractual terms) by threatening the employee that he or she would be fired if the new contractual terms were refused.
An employee is NOT allowed to quit and sue for constructive dismissal if he or she has accepted the new contractual terms. But new contractual amendments may not be enforceable for lack of consideration. In that case, only contractual terms prior to amendments will be considered in a wrongful dismissal suit.
You are well advised to consult an an employment lawyer consultation before signing any new employment contract or contract amendments with your employer or you risk waiving substantive contractual rights to your detriment.