How to Update Contracts for Existing Employees in Ontario
From time to time, it may make sense for employers to revise and renew their employment agreements for existing staff. Updating contracts needs to be handled carefully and, as such, this article offers tips and best practices for this process.
Identify what matters
It is important to have a clear objective before beginning to update existing employment agreements. An employer’s goal may be to streamline internal processes, correct contractual deficiencies, or reflect a change in structure or mandate. It makes sense to discuss these aims internally and seek employment law advice to assess different ways of achieving the intended goal.
A good example may be revising employment agreements to ensure that their termination provisions comply in all circumstances with minimum statutory requirements. This type of revision can help further operational certainty and avoid unintended liability.
Adopt a clear communication strategy
Employers should adopt a clear and transparent communication strategy for informing staff of proposed new employment terms. It is important that employees feel respected and treated with fairness and honesty. By ensuring that people understand why contracts are changing, and how it may affect them, employers can help foster trust and minimize the risk of damaging relationships and/or workplace culture.
Provide fresh consideration
A binding contract has three constituent parts: an offer, acceptance of the offer, and consideration flowing both ways. While parties usually have no issue in making an offer and receiving acceptance of the same, the need for fresh consideration can sometimes be overlooked.
Consideration is the idea that each party to a contract should get something new of value. It is settled law that continuing employment does not provide sufficient consideration to introduce a new contract (see: Theberge-Lindsay v. 3395022 Canada Inc. 2018 ONSC 3222 at para 36).
As such, employers should make clear that in exchange for agreeing to the proposed new terms, the individual will get something new. An easy way to satisfy this requirement is to offer a signing bonus. Other examples of fresh consideration could be an increased salary, new benefits coverage, or greater vacation entitlement. Regardless, it is critical to clearly identify and then grant the new consideration upon the individual’s execution of the contract.
Allow time to review
When proposing new terms of employment, employers should allow a reasonable opportunity for workers to consider the changes and ask questions. It is generally best practice to provide at least a week to review and accept revised terms. This timeline will permit the employee to seek professional advice (from legal counsel, financial advisor or otherwise) without being under a time crunch. Given that employers want to be able to rely on the new terms, it is important to be able to show that the terms were accepted voluntarily and without duress.
Have a contingency plan
What happens if an employee refuses to sign the revised contract? This may happen for any number of reasons but is perhaps most likely where the individual believes they may be giving up a significant existing entitlement. In such circumstances, employers generally have four options in response:
accept the employee’s refusal and continue working on the existing terms;
attempt to negotiate further and reach an agreement on alternate terms moving forward;
terminate the relationship immediately (and provide the individual with their dismissal entitlements according to the existing contractual terms); or
inform the employee in writing that the business will be proceeding with the proposed changes as of a specified future date and that, beyond that date, if the new terms have not been accepted, their employment will end.[1]
Each of these options present a degree of risk and potential downsides (such as relationship harm and/or unwanted costs). As such, it is important for employers to have considered these situations in advance of communicating proposed new contracts and have a clear plan for responding to each possible scenario.
Takeaway
It is a worthwhile exercise to implement and update written employment agreements. They provide an opportunity to clearly set the terms of engagement and avoid disputes down the road. Moreover, failing to have in place lawful employment agreements can prove costly. As such, while implementation can present challenges, it may prove preferable to maintaining the status quo.
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 in Ottawa and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.
[1] In selecting the termination date, employers should seek guidance from an employment lawyer to ensure they meet any existing contractual and/or common law obligations and thus minimize the risk of liability.
