Nov 21, 2015

Holland v Hostopia.com: The Importance of Fresh Consideration when Implementing Conditions of Employment in More than One Document

Holland v. Hostopia. Com. Inc., 2015 ONCA 762 (CanLII)

In the recently released decision Holland v Hostopia.com Inc., 2015 ONCA 762 [Holland], the Ontario Court of Appeal reaffirms the importance of fresh consideration where the employer seeks to amend the employment agreement.

Where a basic offer of employment includes a requirement to sign a full employment agreement at a later time, that full employment agreement will not be enforceable if its terms are inconsistent with the terms of the basic offer of employment, unless there is fresh consideration.

Facts

Mr. Holland accepted a written offer of employment for the position of National Account Manager at Hostopia.com. The offer contained a statement that he would be required to sign an employment contract. He signed an employment contract nine months after he started work. The contract included a termination clause, which provided for termination by notice under the Employment Standards Act, 2000, SO 2000, c 41 [ESA].

Mr. Holland’s employment was terminated without cause after seven years. The employer provided pay in lieu of notice, which was in accordance with the ESA requirements.

Mr. Holland sued. Among other things, he claimed that the employment contract, which limited his termination package to the minimum ESA entitlement, was invalid due to lack of consideration. Accordingly, he argued that he was entitled to the common law notice of termination.

Trial Decision

The trial judge rejected Mr. Holland’s argument that the employment agreement was void for lack of fresh consideration, because he was already bound by the employment agreement contained in the offer letter.

The trial judge found that fresh consideration was not required for the following reasons:

  1. the offer letter and the employment agreement were interrelated, were not inconsistent and did not negate each other – therefore, together, they constituted a single contract of employment (Holland, para 23);
  2. the offer letter was an introductory part of the more extensive employment contract, which was to follow later (Holland, para 24);
  3. the offer letter contemplated the acceptance process, which included signing the employment contract at a later date. By agreeing to the offer letter Mr. Holland also agreed to the employment agreement that followed (Holland, para 26).

Put another way, the trial judge found that, on the facts of this case, consideration was given for a single contract made up from two closely related and consistent documents.

Having concluded that the employment agreement was valid and enforceable, the trial judge found that the termination provision in the employment agreement was sufficiently clear and in compliance with the ESA. Accordingly, the trial judge concluded that Mr. Holland was paid at least as much as he was entitled to under the terms and conditions of his employment contract.

It is interesting to note that the trial judge disregarded the fact that the offer of employment said nothing about the termination notice.

In the alternative, the trial judge noted that had Mr. Holland been entitled to the common law reasonable notice, his notice based on all aspects of his compensation package would be eight months, bearing in mind the factors from Bardal v Globe and Mail, [1960] OWN 253 (HC), such as age of the employee at the time of termination, nature of employment, seniority, length of employment with the company, availability of similar employment, etc.

Court of Appeal Decision

The issue on appeal was whether the termination provision in the employment agreement was enforceable, given that Mr. Holland signed it nine months after he commenced employment pursuant to the offer letter, which said nothing about notice of termination.

The Court of Appeal disagreed with the trial judge’s reasoning that the offer letter and the employment agreement were consistent and therefore together constituted one contract of employment. The court noted that the offer letter and the employment agreement differed at least in one material respect. Specifically, when Mr. Holding accepted the offer of employment, he signed the offer letter, thereby accepting the terms and conditions specified in the offer letter. The terms and conditions of the offer letter said nothing about notice of termination.

The law is clear that where the express termination provision is absent, the common law reasonable notice of termination constitutes an implied term of the contract (Francis v Canadian Imperial Bank of Commerce (1994), 21 OR (3d) 75 (ONCA)). In addition, the law has always treated express and implied terms as being equivalent in effect (BG Checo International Ltd. v British Columbia Hydro & Power Authority, [1993] 1 SCR 12, p 31).

Since the offer letter did not contain an express termination provision, it was implied that, pursuant to this letter, Mr. Holland was entitled to the common law notice of termination. On the other hand, the employment agreement, which the employer presented to Mr. Holland nine months later, contained an inconsistent term. Instead of providing for reasonable notice, it limited Mr. Holland’s notice of termination to the statutory minimum set out in the ESA.

The court also noted that there was neither evidence that the employer discussed the termination entitlements with Mr. Holland prior to him signing the offer letter, nor evidence that Mr. Holland agreed to waive his right to reasonable notice of termination when he signed the offer letter. Since the employment agreement contained a new term to which Mr. Holland had not previously consented, it required Mr. Holland’s fresh consideration.

The court concluded that without fresh consideration the employment agreement could not displace the implied term of reasonable notice contained in the offer letter. Accordingly, Mr. Holland was entitled to reasonable notice of termination calculated in accordance with the common law principles.

This case stands as yet another reminder that failing to carefully draft and introduce employment contracts to employees may prove to be costly for employers. Employers who believe that they have limited their obligations on termination of employment to statutory notice and severance entitlements may find that, in fact, they must provide reasonable notice as required under the common law.

The decision also shows that courts continue to pay regard to the role that work plays in a person’s life, the imbalance in many employer-employee relationships and the desirability of interpreting employment contracts to provide a measure of protection to vulnerable employees.