A Thing Writ in Water: The Risk of Missing Fresh Consideration in Employment Contracts

Employment contracts are more than just paperwork. They set the terms of the employer-employee relationship, define rights and obligations, and, crucially, determine what happens when the relationship ends. Solid employment contacts are generally quite beneficial to Canadian employers and we usually recommend that employers get them in place at the outset of employment.

But what if an employer wants to implement a new contract for an existing employee? This might be very desirable to the employer if the employee currently doesn’t have a written contract or their current contract lacks a good termination clause.

However, the recent decision in Sui v. HungryPanda Tech Ltd., 2024 BCSC 1856 (“Sui”) is a sharp reminder that employers must take certain steps to ensure that these new contracts are legally binding.

The Sui Case: What Went Wrong?

In Sui, the BC Supreme Court considered the enforceability of the termination clause for a recently terminated employee. The facts of the case show a classic misstep made by too many employers:

• The Setup: HungryPanda offered Mr. Sui a job via email, laying out key terms like salary, work hours, stock options, and a six-day workweek. The email also mentioned, “After your confirmation we will provide you with an official employment agreement for your signature.” Notably, the offer did not include a termination clause.
• The Switch: After Mr. Sui accepted the offer, HungryPanda presented him with a formal employment agreement, this time including a termination clause that limited severance to the minimums under the Employment Standards Act (“ESA”). The Court noted that this was more than just a formalization of earlier terms—it was a material change requiring fresh consideration.
• The Quid Pro Quo: The formal agreement did not include any new benefits to the employee – only those discussed in the original offer letter. The agreement vaguely mentioned that the employee would receive “those additional benefits” set out in the employer policy manual but no particulars. As it happened, the policy manual also contained no mention of employee benefits.
• The Outcome: When Mr. Sui was terminated 18 months later, HungryPanda sought to rely on the termination clause. However, the Court found no fresh consideration had been provided along with the formal agreement, rendering its termination clause unenforceable. As the Court put it, the promise of additional benefits was “a thing writ in water.”

What is Fresh Consideration?

If you’re thinking of updating an existing employee’s contract—perhaps due to a business acquisition, restructuring, role change, or simply —simply handing over a new agreement isn’t enough. You need to offer the employee something new in return, known as “fresh consideration.” This could include:

• Money Matters: A raise, signing bonus, or lump-sum payment.
• Enhanced Benefits: Additional paid leave, new health benefits, or other tangible advantages.
• (maybe) Career Progression: A promotion or a more prestigious title.

The quantum of the additional offer is not legally important. The keys to an offer being deemed fresh consideration are (i) that it provides an objective, material advantage to the employee; and (ii) that the employee would not have received the new benefit but for their signing the new contract.

Employers sometimes want to retrofit a new contract into the situation where an employee is going to receive an annual pay increase. This plan may not work in situations where the employee has already been promised the raise – in that situation, the raise cannot be truly said to be in return for signing the agreement.

Where HungryPanda Fell Short

HungryPanda argued that an expense account, paid time off, and extended health benefits were fresh consideration for entering into the formal agreement. However, the Court found these arguments fell flat:

• Expense Account: The Employment Agreement merely promised reimbursement for business expenses, which was already a legal obligation under the BC ESA. As the court noted, “This is no more than the law requires.”
• Paid Time Off: The agreement only provided the statutory minimum for paid vacation. Since this was something Mr. Sui was already entitled to, it didn’t count as fresh consideration.
• Extended Benefits: The promise of health benefits was too vague. The employment agreement referred to benefits available under the company’s manuals and policy documents, but the employee handbook said nothing about an extended benefits plan. The judge emphasized that vague or pre-existing benefits do not meet the standard for fresh consideration.

Avoiding Costly Mistakes

The Sui decision isn’t the first time the courts have highlighted the importance of keeping employment agreements updated—and enforceable. We’ve previously discussed how changes to an employee’s role over time can lead to unenforceable agreements in our article on the shifting substratum doctrine.

The takeaway? Whether you’re updating agreements due to role changes or asking employees to sign new contracts, make sure fresh consideration is part of the equation.

The Bottom Line

An employment agreement without consideration is like building a house on sand—unstable and risky. The Sui case underscores the importance of not only drafting clear and enforceable agreements but also ensuring that any changes to those agreements are supported by fresh consideration.

If you need assistance reviewing or updating your employment agreements, please contact Matthew E. McCarthy from our Labour & Employment Group.