What is “Consideration” and Why does it Matter?
Offering fresh consideration when amending employment agreements is not only a legal requirement—it is also a fundamental principle of fairness and respect in the workplace.
What is “Consideration” and Why does it Matter?
In the dynamic landscape of employment relationships, it’s not uncommon that employers will need to adjust the terms of their initial agreements with employees. These amendments could be due to changes in business needs, regulatory requirements, legal updates that affect the enforceability of certain provisions, or evolving expectations of either the employee or employer. Whether the initial agreement was verbal or written, there are specific legal requirements that an employer must understand and follow to ensure the amended employment agreement is enforceable.
Understanding Amendments and Consideration
In Ontario, amending an employment agreement involves more than just a verbal agreement or a simple handshake. Any changes to an existing employment contract must be supported by valid consideration.
In short, consideration is something of value exchanged between parties to a contract. In the context of hiring a new employee, and entering into an employment relationship, the exchange of value is the job. When the employment relationship is ongoing and the employer wants to update or amend an existing employment agreement, the “offer of the job” is no longer valid consideration and the employer must provide “fresh consideration” for the new terms and conditions being agreed upon in the employment contract.
Some forms of consideration are:
- Monetary Compensation: This could include a raise, bonus, or any financial benefit directly linked to the amendment.
- Promotion or Benefit: Offering additional responsibilities, benefits, or privileges can also constitute valid consideration.
- Training or Professional Development: Providing opportunities for skill enhancement or career advancement can serve as consideration.
- Other Benefits: Non-monetary benefits such as increased vacation days, flexible work arrangements, or enhanced job security can also be considered as valid consideration.
Steps to Amend an Employment Agreement
- Identify and Assess the Amendments: If the employer is introducing changes to job responsibilities, compensation structure, working conditions, geographic locations, or entitlements – these amendments are fundamental and fresh consideration is necessary.
- Communicate the Amendments: Provide the employee with the revised employment agreement and initiate open and transparent communication about the proposed amendments.
- Fresh Consideration: Ensure that the amendment includes an offer of value to the employee that goes beyond what they are already entitled to under the existing contract (i.e. fresh consideration). This is crucial to validate the changes.
- Review and Approval: Provide the employee with sufficient time to review the amended employment agreement and encourage them to seek legal advice if necessary.
- Implementation and Documentation: Ensure the employee signs the amended agreement and that both parties receive a copy for their records. Update your records and payroll systems accordingly to reflect the new terms.
The Importance of Offering Fresh Consideration and Potential Risks, if not!
Offering fresh consideration when amending employment agreements is not only a legal requirement—it is also a fundamental principle of fairness and respect in the workplace. Offering valid consideration ensures legal validity and compliance with Ontario’s employment standards, reinforces mutual agreement, and demonstrates fairness and equity.
The biggest risk of not providing valid consideration is a constructive dismissal claim against an employer. A constructive dismissal occurs where an employer unilaterally imposes a fundamental change to the terms and conditions of an employee’s employment without the employee’s consent. A constructive dismissal claim can result in a judgment of damages against an employer in favour of the dismissed employee (i.e. this can be a very expensive risk!)
