Jan 28, 2020

Do amended employment contracts still require fresh consideration?

Quach v. Mitrux Services Ltd., 2020 BCCA 25 (CanLII)

Historically, the law has been that an amendment to a contract will only be enforceable if both parties receive fresh consideration as part of the arrangement. But in 2018, the BC Court of Appeal shook things up when it held that fresh consideration will no longer always be required to support a contractual amendment.

The extent to which this development may affect employment law – and particularly the scenario where contract amendments limit or remove employees’ rights – remains to be seen. However, a new BC Court of Appeal decision, Quach v. Mitrux Services Ltd., 2020 BCCA 25, gives us our first sense of the direction the law may be moving when it comes to employment contract amendments that provide no consideration to the employee.

Background

The usual rule in contract law is that a valid contract requires three elements:

  • Offer and acceptance;
  • Consideration; and
  • An intention to form legal relations.

Therefore, in employment law (as in contract law generally) fresh consideration has always been necessary in order to create or vary a contract (see Singh v. Empire Life Ins. Co., 2002 BCCA 452). In Krieser v. Active Chemicals Ltd, 2005 BCSC 1370, the BC Supreme Court summarized the state of the law:

[A] modification to a pre-existing employment contract will not be enforced unless there is a further benefit to both parties.

This rule of fresh consideration is particularly relevant when it comes to termination clauses introduced into amended employment contracts. For example, an employer may require an existing employee to sign an employment contract that adds a restrictive termination clause. Later, the employer will terminate the employee in compliance with the termination clause. The question becomes whether that employment contract – and therefore the termination clause – is enforceable. If not, the employee may have a wrongful dismissal claim.

Most cases of this type have focused on whether the new contract provides any new benefit to the employee. If there is consideration, no matter how insignificant, then the law says that the employment contract may be enforceable. If there is no consideration, then the contract will usually fail. This has led employers to make many different arguments in search for anything that could be counted as consideration, including:

Consideration no longer required for amended contracts

In 2018, the BC Court of Appeal released its decision in Rosas v. Toca, 2018 BCCA 191 (not an employment law decision), deciding that consideration will no longer always be required to support an amended contract. Rather, the Court stated that consideration may be relevant, but not determinative, in deciding whether an amended contract is enforceable:

When parties to a contract agree to vary its terms, 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.

The Court’s decision in Rosas v Toca has left many wondering whether, or to what extent, this applies to employment contracts. Although employment law is rooted in contract law, courts are cognizant of the power imbalance that often exists between employees and employers. Allowing employers to erode the rights of existing employees, without any reciprocal benefit to the employees, through the use of one-sided contract amendments would be a significant shift in the current state of the law.

Quach v Mitrux: Perhaps not so much has changed after all?

Quach v. Mitrux Services Ltd., 2020 BCCA 25 is the first case to consider the application of Rosas v Toca in employment law. The facts are that the plaintiff, Mr. Quach, signed a one year employment contract with the defendants. The first contract, which was prepared by Mr. Quach’s lawyer, would have commenced October 1, 2015, and would require the employers to pay the full amount of the remaining term upon early termination of the contract.

After signing the first contract on August 25, 2015, the employers received legal advice and determined that a month-to-month contract would be preferable for them. Mr. Quach was initially reluctant to agree to the employer’s changes. But on September 28, 2015, he was told that signing was mandatory in order for his new work to commence. Having already left his previous job in order to work with the defendants, Mr. Quach agreed. The second contract was signed on September 28, 2015. But then on September 30, 2015, before the employment actually commenced, Mr. Quach was terminated.

The employers, Mitrux Services Ltd. and Ameri-Can Freight Systems Inc., attempted to rely on the second contract, which would have significantly limited their liability to Mr. Quach. Mr. Quach, on the other hand, argued that the second contract failed because it lacked fresh consideration.

The trial judge had found that the second contract failed due to lack of consideration flowing to Mr. Quach. The Court of Appeal upheld this conclusion. However, given the relevant developments in Rosas v Toca, the appellate Court first commented on how that case could affect the field of employment law. While noting that Rosas v Toca had not been specifically addressed in the present case, the Court provided the following useful comments:

The effect of Rosas upon Singh (not referred to in Rosas) has not been addressed in this case. It seems to me that the import of Rosas may not change the authority of Singh in the nuanced world of employer and employee contractual relationships. Whether it does is an interesting question that can and should be left to another day because, in my view, the Second Contract presents much more than a Rosas‑style variation in any event.

While we still wait for a court to address the effect of Rosas v Toca head-on, the Court’s decision in Quach v Mitrux is helpful in a number of regards. In particular:

  • The Court questions whether Rosas v Toca applies to employment law, leaving open the possibility that Rosas v Toca will not apply to employment contracts at all.
  • The Court recognizes that nuances are present in employment law which should be accounted for. If Rosas v Toca applies to employment law at all, this could mean that we see its application modified in a way that accounts for the unique nature of employment law as a subset of contract law.
  • Despite commenting on the decision in Rosas v Toca, the Court still confirmed that the second contract was unenforceable for lack of consideration. This tells us that even if Rosas v Toca is applicable to employment law, amended employment contracts at least still can fail for lack of consideration (the Court stated that the second contract was "much more than a Rosas-style variation," although it is unclear exactly where the line was crossed).

The extent to which Rosas v Toca will affect employment law remains uncertain. However, if Rosas v Toca applies to employment law at all, Quach v Mitrux is an indication that careful consideration will have to be given when it is applied to the unique subset of contract law that is employment law.

Author: Brendan Harvey is an employment lawyer in Vancouver, BC practicing on the North Shore with Yeager Employment Law.