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CONTRACTS - THERE MUST BE AN EXCHANGE FOR CONTRACTS TO BE ENFORCEABLE

Whether or not a written employment agreement exists, the law views the employment relationship as a contract between an employer and employee.  In any contractual situation, in order for one party to prove that a contract exists, it must prove not only that a promise was made but that the other party got something for making the promise.  Put another way, the party trying to prove the contract must show that they gave something up of value to gain the promise (contract) they say exists.
 
If I walk up to you on the street and tell you that I'm going to give you my watch next week, but I do not carry through, there is nothing you can do about it.  I made a gratuitous promise for which you paid nothing. 
 
If, on the other hand, I walk up to you on the street and tell you I will give you my watch next week if you give me $5 (unfortunately that is full value), a contract has been made.  If you give me the $5 and I accept it, you could sue me for the watch if I don't hand it over.
 
This rule applies to employment law.  At the time of offering a potential employee a job, an employer can set down conditions and terms of the employment.  If the employee accepts the job, those terms will be enforceable unless they are illegal.  The employee got something of value for making the promise...she got a job.
 
With amazing frequency, employers assume that if they get an existing employee whom they have already hired to sign a piece of paper agreeing to a new term of the relationship, it will be enforceable.  Generally speaking, unless the employee received a bonus, a raise, a promotion or some other thing of value to the employee in exchange for signing the new contractual terms, the contract will not be worth the paper it is written on. 
 
This rule has been recently reaffirmed by an Ontario case.  A longstanding employee was approached by the employer with a piece of paper it asked him to sign.  The paper indicated that the employee was agreeing that for one year after he left his employment with the employer he would not take employment with a competitor.  The employee signed the agreement.  He was not threatened with termination and there was no evidence that he thought he would be terminated if he did not sign it.  He did not get a raise, a bonus or any other additional benefit for signing the agreement.  When the employee eventually resigned his employment and began a competing company, the employer tried to enforce the non-competition agreement.   It failed.  The court found that since the employee had received nothing in exchange for signing the  new contractual term, there was no contract with respect to non-competition.
 

The employer tried to argue that the benefit the employee received for signing the contract was that he was not fired and was allowed to continue his employment.  The court found that even if the employer had threatened to terminate the employee if he did not sign the non-competition agreement, that would not have been enough.  There would have to have been evidence that the employer, in exchange for the employee signing the agreement, agreed not to terminate the employment for at least a specific period of time.  This means that if the employer had told the employee that if he signed the agreement they would assure him work for two years without termination and the employee had signed....the contract would have been enforceable.
 
Smart employers will simply save any important contractual changes for salary review time.  Before the raise is granted, the employee receives a letter indicating that the employer is offering him a 3% raise in his salary if he signs the new contractual terms.  If the employee doesn't sign, he does not get the raise.  If he signs, he got something in exchange and the contract is enforceable.
 
As published in the Hamilton Spectator, March 31, 2003
 
Ed Canning
Ed Canning
P: 905.572.5809
ecanning@rossmcbride.com