The Ontario Court of Appeal restored an employment termination clause that a motion judge struck down as invalid for lack of "consideration," defined as anything of value exchanged by the parties to a contract. There are three elements to a valid employment contract: offer, acceptance and consideration. An employment contract is invalid without consideration.
The employee worked for Carsen, a company that sold photography equipment. Olympus Canada purchased some but not all of Carsen's assets and offered employment to Carsen's employees. Olympus Canada offered the employee in question a written employment contract that was substantially similar to his former contract, with a few exceptions.
The new contract included a clause that purported to limit the compensation the employee would receive upon termination. In addition, the agreement provided that the worker would be treated as a new employee and his service with any previous employer would not be recognized.
The worker signed the agreement with Olympus Canada. He did not receive any compensation for entering into the employment agreement, nor did he receive any pay in lieu of notice or severance pay from Carsen. Carsen confirmed that his employment would terminate in approximately three months and that the employee had accepted an offer of employment with Olympus Canada. Ten and a half months after he started working for Olympus Canada, the company dismissed the employee without cause and attempted to rely on the termination clause in the contract. The motion judge found that there was no consideration for the contract with Olympus Canada, making the termination clause unenforceable.
The Ontario Court of Appeal overturned the motion judge's decision. The court noted that a promise to perform an existing contract—for instance, an employer's promise to keep employing a worker—is not consideration for changes to that employee's employment contract. However, in this case, Olympus Canada was a new employer. It had no obligation to continue the worker's employment after it bought some of Carsen's assets.
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Therefore, Olympus Canada's offer, and the employee's acceptance, constituted a valid new employment contract. The consideration was the same as for most new contracts of employment: the promise to perform certain services for wages. The court set aside the summary judgment and ordered the matter to proceed to trial.
Krishnamoorthy v. Olympus Canada Inc., Ontario Ct. App., 2017 ONCA 873 (CanLII) (Nov. 16, 2017).
Professional Pointer: The Court of Appeal dealt narrowly with the issue of whether there was valid consideration for the new contract, which included a termination clause. The court noted that when an employer sells a business or a part of a business and the purchaser employs an employee of the seller, Section 9(1) of the Employment Standards Act (ESA) deems a worker's employment to be continuous. However, it deems employment to be continuous not for all purposes but merely for the purposes of the minimum standards contained in the ESA. As such, the employee in this case could not use Section 9(1) to claim rights or entitlements on which the ESA is silent.
Amanda Boyce is an attorney with Stringer LLP, the Worklaw® Network member firm in Toronto.
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