Employers – Please Consider Consideration! Lessons from a Recent B.C. Case

Introduction

A common question we get from employers is whether they can ask an existing employee to sign a new contract. The employer may want to change the structure of a bonus plan, add a non-solicitation clause, or simply amend the employee’s job title.

Most frequently this question comes up when an employer may need to reduce their labour force in the future and understand this would leave them on the hook for significant severance cost so they want to implement a termination clause into employment contracts to help reduce this liability.

This is a very understandable impulse but one that is more complicated than it appears. What many employers fail to appreciate is that they can ask an existing employee to sign a new employment agreement, but they need to provide the employee something in return. That “something in return” is also called “fresh consideration”. In the absence of fresh consideration, that brand new signed contract is little more than a pretty piece of paper – albeit a well-drafted one (assuming it was prepared by skilled employment counsel).

However, even when fresh consideration is given, the employer isn’t necessarily in the clear. A recent British Columbia Supreme Court decision serves as a reminder that even where an employee receives a pay increase or additional benefits around the time of a new contract being signed, the contract may still be unenforceable if the employer cannot demonstrate those benefits were specifically provided in exchange for signing it.

A Costly Lesson in Contract Changes

In Chowanetz v. Ivor Forest Products Ltd., an employee was hired in 2021 under an employment agreement which did not contain a termination clause.

Nearly four years later, the employer introduced a new employment agreement containing a termination clause that significantly restricted the employee’s entitlements upon termination. The employee signed the new agreement in November 2024. In or around the same time period, the employee received certain new entitlements including:

• A wage increase;
• An RRSP matching program; and
• A bonus program.

When the employee was later dismissed without cause, the employer sought to rely on the termination clause in the new agreement. The employee argued that the agreement was unenforceable because he had not received valid fresh consideration in exchange for signing it.

The Court agreed.

What Is Fresh Consideration?

As we discussed in our previous article, an employer generally cannot impose new contractual terms on an existing employee without providing something of value in return.

Continued employment alone is not enough.

The employer must provide fresh consideration such as a bonus, raise, additional vacation, signing payment, promotion or other valuable benefit.

This decision highlights an equally important point: the fresh consideration must be given in return for the employee signing the new contract. Without that clear connection, the contract will be of little use.

Why the Employer’s Argument Failed

The employer pointed to the three new entitlements received by the employee in the same time period that the contract was signed. On the surface, those entitlements likely seemed sufficient.

The problem was that the evidence did not establish that these benefits were actually provided in exchange for the employee signing the new agreement. The Court noted that the employee could reasonably have expected to receive them regardless of whether they signed.

Specifically, the Court found that:

• The employee already had a contractual right to annual wage reviews under his original employment agreement, making it difficult for the employer to establish the later wage increase was something entirely new;
• The RRSP matching program had been discussed and offered before the new contract was signed; and
• The bonus program appeared to exist independently of the new agreement.

In other words, the employee could reasonably have expected to receive these benefits regardless of whether he signed the new contract.

As a result, the Court concluded that the employer had failed to prove the employee received any fresh consideration for the new agreement.

The Consequences

Because the new agreement was unenforceable, the employer could not rely on its termination clause.

Instead, the employee’s entitlements were assessed under the common law. While the employer had intended to limit the employee’s severance to the statutory minimums plus one additional week, the Court ultimately awarded six months’ pay in lieu of notice.

This case therefore illustrates how a mistake made years earlier when updating a contract can have substantial financial consequences when an employment relationship later ends.

Key Takeaways for Employers

This decision provides several practical reminders for employers seeking to update employment agreements with existing staff:

• Ensure employees receive a genuine new benefit when signing a revised agreement.
• Make it clear that the benefit is being provided in exchange for signing the contract.
• Document that connection in writing.
• Avoid relying on benefits that the employee is already entitled to receive or reasonably expects to receive.
• Review existing employment agreements before introducing new contractual terms.

Perhaps most importantly, employers should remember that a well-drafted contract is not enough. The implementation of the contract – how it is offered, signed and put into action – is often just as important as what the words on the page say.

Without that solid process, a great contract on paper may ultimately provide little protection when it is needed most. That is where practical employment counsel is most important – ensuring that the employer’s good intentions translate into good results.

Need Advice?

Employment agreements are often an employer’s first line of defence when managing workplace risk. Ensuring those agreements are properly drafted, updated, and supported by valid fresh consideration can help avoid costly disputes down the road.

For advice regarding employment contracts, termination clauses, or workplace policies, please contact Matthew McCarthy from Boughton Law’s Employment & Labour Group.

This article is provided for general informational purposes only and does not constitute legal advice. Readers should not rely on it as a substitute for legal advice regarding their specific circumstances.