Employers often wish to enter new or updated employment agreements with existing employees. The driving force is typically that circumstances have changed, but it can also be that the employer simply wants different or additional terms. However, the employer must give the employee valid consideration, otherwise the new or updated agreement will not be enforceable.
The Ontario Court of Appeal’s decision in Theberge-Lindsay v. 3395022 Canada Inc. serves as a reminder that continued employment in itself is not valid consideration. The Court also addresses a new issue: is valid consideration given if the new agreement follows the employee’s resignation albeit if the resignation is rescinded prior to its effective date? The Court held that a re-hiring in this context constitutes valid consideration. The Court also confirmed that changing the corporate entity intended to serve as the employer does not break the employee’s service if the actual employer remains the same.
The Court’s holding that a resignation breaks the chain of employment, even if it is rescinded prior to its effective date, is a favourable result for employers. Nonetheless, the need for fresh consideration will depend on the situation at hand. Legal counsel can advise on ways to bolster the enforceability of agreements with existing or re-hired employees. Legal counsel can also assist with calculating service, and other aspects of employee entitlements on dismissal. Employers should also be attuned to the fact that decision makers will look beyond the form of an agreement to determine who the actual employer is. Proactive attention to this issue can save time, money and, in certain cases, the employer’s reputation.
The plaintiff, Ms. Theberge-Lindsay, was hired as a dental hygienist in 1993 by Dr. Kutcher, a dentist and periodontist. In the succeeding years, for tax purposes, Dr. Kutcher used various corporate vehicles to employ his hygienists. At various points, Dr. Kutcher required Ms. Theberge-Lindsay to sign new employment agreements reflecting the new employer entities. Each of the agreements limited her entitlement upon dismissal without cause to the minimum required by employment standards legislation.
In March 2005, Ms. Theberge-Lindsay resigned with an effective date of July 7, 2005. In or about May 2005, she notified Dr. Kutcher that she intended to remain employed in his dental office, having ended her engagement which had prompted her resignation. At trial, Ms. Theberge-Lindsay testified that Dr. Kutcher told her that he was pleased to have her stay. However, Dr. Kutcher presented her with a new employment agreement on June 30, 2005 which she then signed. This agreement also limited her entitlement upon dismissal without cause to the statutory minimum.
In 2012, Ms. Theberge-Lindsay was dismissed without cause. She was provided with one week’s salary in lieu of notice, in satisfaction of the most recent employment agreement, entered by the parties in 2011.
Lower Court’s Decision
The lower court found that Ms. Theberge-Lindsay had 19 years of uninterrupted service and that each of the employment contracts she signed was unenforceable since the offer of continued employment alone did not constitute valid consideration. The trial judge found that Ms. Theberge-Lindsay was wrongfully dismissed and entitled to damages representing 15 months of reasonable notice.
Court of Appeal’s Decision
The Court of Appeal made three key findings. First, the Court agreed with the lower court that the 2011 employment contract was void for lack of consideration and accordingly Ms. Theberge-Lindsay was not obliged to accept one week’s salary as notice of dismissal.
Second, the Court overturned the lower court’s finding that Ms. Theberge-Lindsay had 19 years of uninterrupted service. Instead, the Court accepted the employer’s argument that the 2005 resignation broke the chain in her employment. The Court found that there was valid consideration for the June 30, 2005 employment contract, specifically, “Ms. Theberge-Lindsay’s offer to again be employed by Dr. Kutcher and his acceptance of her offer to again employ her”, despite there being no changes to the terms of the employment. The termination clause in the June 30, 2005 contract was determinative of her entitlement to notice – under which Ms. Theberge-Lindsay was entitled to 7.5 weeks of notice.
Third, the Court left in place the lower court’s finding that Dr. Kutcher was Ms. Theberge-Lindsay’s actual employer despite the various changes he made to his corporate entities. As a result, these changes did not break Ms. Theberge-Lindsay’s length of service.
We will monitor any further judicial treatment of the Theberge-Lindsay decision.
- Many thanks to Alissa Scarcello for her assistance with this article.