Can my employer modify my employment agreement?
As we enter a new year, employers may be reviewing existing employment contracts and considering potential changes and amendments. In these situations, it is important to understand the requirements for enforceable amendments as well as employee’s options if confronted with a proposed change to the employment agreement.
Contract Law 101
An employment contract can be understood as any other contract (for example, a service contract, agreement of purchase and sale, etc.). Therefore, it is helpful for both employees and employers to understand the basic requirements of an enforceable contract. There are three basic components needed to form a valid contract.
- Offer – Company A is offering Employee B employment.
- Acceptance – Employee B accepts the offer of employment.
- Mutual Consideration – Company A receives the value of an employee and Employee B receives the value of payment.
Changing the Employment Contract
The above components also apply when amending an existing employment contract. An employer cannot unilaterally change the terms of an existing employment contract without providing an offer, the employee’s acceptance of the offer, and new consideration. New consideration means that both parties are receiving something new of value in exchange for the amendment.
What is Required?
An employer may seek to revise an employment contract for various reasons such as updating the termination clause, revising the pay structure, changing the hours of work, etc. Typically, the change proposed is one that is beneficial to the employer. An employment contract cannot be changed solely because the employer revises the contract and the employee signs it. In order for the new contract to be enforceable, there must be a third component – mutual consideration.
What is Mutual Consideration?
In order to have an enforceable revision to the employment contract, both parties must receive new consideration. Both the employer and the employee must be receiving something of value that they were not already entitled to before.
This means that the employer cannot continue to rely on the value of providing employment to the employee, rather, they must give an additional benefit.
It is helpful to review this concept through a hypothetical scenario:
An employer is seeking to revise the employment agreement in order to reduce the car allowance provided in the original contract. This is a benefit to the employer. Therefore, the employer will be receiving a new value that they did not have before.
However, if the employee is simply presented with this change and told to sign it, the new contract may not be enforceable because the employee is not receiving any additional benefit in exchange.
If the employer wants this change to be enforceable, they will provide the employee with a new benefit, such as a signing bonus in order to ensure that there is new mutual consideration. If the employee agrees to the revised contract, then all three components of the contract will be present:
- Offer: The employer presents the employee with the revised contract.
- Acceptance: The employee signs the revised contract.
- Mutual Consideration: The employer receives a reduction in car allowance and the employee receives a signing bonus.
Are Employees Required to Accept a Modification to the Employment Contract?
An employee can decide not to accept a change to an employment contract if they are not agreeable to the revision presented by the employer. In the event that an employee does not want to accept the proposed changes, there are two possible outcomes.
- The employer decides to abandon the proposed change or revise the change in a way that is agreeable.
- The employer is not willing to abandon the change and there is no agreement.
Proposing an Employment Contract Modification
If an employer is hoping to propose an amendment to an existing employment contract, the employer should present the employee with the proposed change and inform the employee that the existing employment contract will terminate following the necessary notice period.
The employee will then have the opportunity to accept the new terms of employment or decline the change. If the employee is not willing to agree to the amendments, the employer will then terminate the employment contract by providing the necessary notice period or pay in lieu of notice.
Employers should be careful to ensure that they are providing the necessary notice period as per the applicable employment standards legislation and/or common law in order to mitigate the risk of a potential constructive dismissal claim.
On the other hand, employees should be aware of the requirement for new consideration if they are presented with an amendment to their employment contract. If a new value is not being provided, the amended contract may not be enforceable.
Further, if an employee’s terms of employment are changing and they do not agree to the change, this will constitute a termination of employment. Therefore, employees should ensure that they are being provided the required notice period or pay in lieu of notice.
If you have questions about existing or new employment contracts and require advice on how to ensure your rights are preserved, whether in relation to termination, wrongful dismissal or otherwise, please contact Toronto employment lawyers, Sultan Lawyers at 416-214-5111 or here.
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