One Of These Terms Is Not Like The Other - Offer Letter vs. Employment Agreement
The interview process appears to go well and negotiations for potential employment progress. Eventually the employer sends out an offer letter including the agreed upon terms. The offer letter states that employment will be accepted by signing the letter and returning it to the employer. It also states that the employee will have to sign an employment agreement at a later time. The employee signs the letter and returns it to the employer. The employee later signs the employment agreement and subsequently is terminated. What happens if the employment agreement is different from the offer letter? Which one will the courts enforce?
As a general rule*, an employer cannot vary the terms of an employee's employment without "fresh consideration" or giving the employee something of value for the varied employment. A recent Ontario Court of Appeal decision, Holland v Hostopia.com Inc., demonstrates this principle.
*It is important to note, that what constitutes a change in the terms of employment or "fresh consideration" is highly dependent on the facts. It is wise to seek the advice of legal counsel about the particular facts of your situation.
The employee received an offer letter relating to a sales position. The offer letter included the essential terms of employment but was silent about the period of notice the employee would receive if terminated and about the commission structure. The employee accepted the employment by signing the offer letter and also signed a Code of Business Conduct and Proprietary Rights Agreement. The latter documents included provisions about notice including an agreement not to compete for six months following termination and not to solicit customers for twelve months following termination.
Nine months after starting the sales position, the employee was given an employment agreement most of which was boilerplate. The employment agreement did allow for termination without cause and notice pursuant to the Employment Standards Act. The employment agreement also doubled the non-compete and non-solicitation provisions to twelve and twenty-four months respectively.
About seven years later, the employee was terminated and sued for wrongful dismissal. The employee argued that since the offer letter was silent about a notice period, he was entitled to notice under common law rather than the Employment Standards Act. He also asserted he was entitled to outstanding commissions. At trial, the employee was unsuccessful on both arguments. He appealed and succeeded on the issue of notice.
The key issue was whether the employment agreement was enforceable on the issue of termination and notice. The Court of Appeal rejected the argument that the offer letter was consistent with the employment agreement on the issue of notice and termination. The offer letter's silence on that issue contained the implicit term that common law would govern. By adding a provision about the governing law and notice period, the employer varied a key term in the employment relationship. Moreover, the employee did not receive anything ("fresh consideration") for that change in terms. The employment agreement was not enforceable on the issue of notice.
On the issue of commissions and bonuses, the Court of Appeal upheld the trial judge's decision rejecting the payment of further commission. It is important to note that although the commission and bonus structure had been changed annually it was not disputed that the employee had received fresh consideration, or value, for the changes to the plan.
The Lesson: Not all provisions of an employment agreement are provisions that will be enforceable by the courts especially if those provisions change an offer of employment, or existing employment relationship. The facts will always govern. Seek legal advice before making changes to any employment relationship.
Holland v Hostopia.com Inc., 2015 ONCA 762 https://www.canlii.org/en/on/onca/doc/2015/2015onca762/2015onca762.pdf
The content and the opinions expressed here is informational purposes only and does not constitute legal or professional advice. Nor does reading or commenting on it create a lawyer/client relationship with the author. I encourage you to contact me directly at adrianlawoffice@gmail.com if you have specific legal questions or concerns.
The author encourages you to share this article on social media.
Follow me on Twitter @gwendolynadrian