Consideration: Why it Matters for Your Employment Contract

For any Ontario employment agreement to be enforceable at law, it must have three components: 1) an offer; 2) acceptance of the offer; and 3) consideration.[1]

The first two points are straightforward and rarely the subject of dispute. But consideration, and lack thereof, is frequently the reason why otherwise valid employment contracts may not be worth the paper on which they are written (or these days, the storage space on which they are saved).

What is Consideration?

At its simplest, consideration can be thought of as some sort of gain, benefit, or advantage, typically received in the employment context in exchange for signing a new contract that has been drafted by an employer. As described by one Ontario judge, consideration is: “a benefit to one party or some trouble, prejudice, or inconvenience to the other party”.[2]

Without consideration, a contract is void ab initio, meaning invalid from the very moment of its creation.

Consideration is particularly significant for proposed new contracts that arise in the course of an existing employment relationship. In this regard, the Court of Appeal for Ontario has noted:

The requirement of consideration to support an amended agreement is especially important in the employment context where, generally, there is inequality of bargaining power between employees and employers. Some employees may enjoy a measure of bargaining power when negotiating the terms of prospective employment, but once they have been hired and are dependent on the remuneration of the new job, they become more vulnerable.[3]

Consideration is less often an issue when workers are initially hired. In such circumstances, consideration can usually be found for any required employment contract in the fact that the worker will receive a new job (along with its corresponding remuneration). In other words, the job itself is consideration.

Bear in mind that the requirement for consideration is a two-way street. Ontario courts have equally found contracts to be unenforceable for lack of consideration when they are drafted by workers (which is fairly unusual) and it can be shown the employer received no new benefit for agreeing to such terms.[4]

What Constitutes Valid Consideration?

Ontario courts have repeatedly held that it is not their job to assess the adequacy of consideration.[5] Rather, they merely need to confirm its existence when determining whether a contract is enforceable.

As explained in a recent trial decision:

As long as there is some consideration for the…contract, the court leaves it to the parties to form their own judgment over its adequacy and to make their own bargain. The law does not require that the new benefits be in the form of money, or that the economic value of the new benefits provided to the employee equal or exceed the economic cost of the new terms of the agreement.[6]

Despite this broad leeway as to what may constitute consideration, prior cases help to flush out what valid consideration looks like in practice:

• Promising continued or ongoing employment is typically not valid consideration for a new contract. In such cases, the employee already has the benefit of their job, and thus would not be receiving anything they do not already possess.[7] However, if a worker’s employment was set to end (say at the conclusion of a fixed-term contract), offering to hire on the employee for an additional future term of work may constitute valid consideration (assuming renewal of the employment relationship was not automatic or a fait accompli);

• A monetary payment, in theory even for a trivial amount, such as a single dollar, could be deemed valid consideration.[8] While most employers will not want to test the patience of a judge by offering such minimal consideration as a $1.00 payment (which could be argued to be de minimis), amounts ranging from $2,000.00[9] to $40,000.00[10] in signing bonuses have been approved by Ontario courts as valid consideration for a new contract;

• New benefit(s) such as additional annual paid vacation time[11], allowing an employee to start working remotely for the first time[12], shortened work hours[13] and promotion to a new role[14] are all examples of types of consideration that have been held to be sufficient by the courts; and

• Added contractual terms must be assessed on their individual merits. Simply because a term is new does not mean it will confer anything of value. For instance, one employer recently argued that the addition of mandatory mediation and arbitration provisions to an employment agreement provided valid consideration. Both the Superior Court and Court of Appeal disagreed with this position, with the former commenting that such changes were instead actually “detriments and cannot be construed otherwise”.[15]

Takeaway

For workers, when you are asked to sign a new employment contract, question what you are getting in exchange for your signature. If you cannot identify some sort of benefit for agreeing to the contract, that should be a signal that the agreement may be invalid for lack of consideration.

For employers, if you are going to go through the trouble of drafting a contract and asking your employee(s) to sign it, make sure that your efforts are not in vain. Be ready to identify, if asked, what new benefit the other party will receive. It is therefore best practice when drafting employment contracts (and in particular, those made in the context of an ongoing relationship) to state explicitly in the agreement itself what will constitute consideration.

If you have any questions regarding contractual consideration, and where it may or may not exist, seek qualified legal advice. Do not leave such an important subject to speculation or guesswork. Our employment lawyers regularly review employment contracts, advise on adequate consideration, and stand ready to assist. 

Vey Willetts LLP is an Ottawa-based employment and labour law firm that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.

[1] Giacomodonato v PearTree Securities Inc., 2023 ONSC 3197 at para. 39 (“PearTree”).

[2] Ibid at para. 44.

[3] Hobbs v. TDI Canada Ltd., 2004 CanLII 44783 (ON CA) at para. 42 (“Hobbs”).

[4] Waddilove v. 1748960 Ontario Limited, 2018 ONSC 448 at para. 37.

[5] Giacomodonato v. PearTree Securities Inc., 2024 ONCA 437 at para. 4.

[6] PearTree, supra note 1 at para. 48.

[7] Ibid at para. 44; see also K.M.A. Caterers Ltd. v. Howie, 1968 CanLII 172 (ON CA) at p. 6 and Hobbs, supra note 3 at para. 32.

[8] DBDC Spadina Ltd. v. Walton, 2014 ONSC 3052 at para. 20; see also Lancia v. Park Dentistry, 2018 ONSC 751 at para. 54 [Lancia].

[9] Lancia, ibid at para. 51.

[10] PearTree, supra note 1 at para. 90.

[11] Ibid at para. 53.

[12] Riskie v Sony of Canada Ltd., 2015 ONSC 5859 at para. 36.

[13] United Rentals of Canada Inc. v Brooks, 2016 ONSC 6854 at para. 51 [“United Rentals”].

[14] Stress-Crete Limited v. Harriman, 2019 ONSC 2773 at paras. 45 and 48; see also United Rentals, ibid at para. 51.

[15] Goberdhan v. Knights of Columbus, 2022 ONSC 3788 at para. 19; see also Goberdhan v. Knights of Columbus, 2023 ONCA 327 at paras. 21-23.