Canadian Employment Law Today

Cases and Trends Cases and Trends Canadian HR Reporter, 2020 6 | | April 22, 2020 April 22, 2020 iconoclastic decision in Rosas v. Toca, which held that contract variations should be enforceable without fresh consideration, absent duress, un- conscionability or other public policy concerns. Since Rosas, there has been speculation about whether this fundamental shift will apply in workplace contexts. Quach v. Mitrux Services Ltd. is British Co- lumbia's first appellate decision to address the impact of Rosas on employment law. While it leaves the door open to a change in approach, it sends a strong signal that the impact (if any) of Rosas on employment law may prove to be limited. This article will summarize the established law on the requirement of consideration, ad- dress the effect of Rosas on those fundamentals and discuss the uncertainty following Quach and how employers can respond. The established law Consideration refers to the value that passes be- tween the parties to a contract. It marks the key difference between a gift (in which value flows in only one direction) and an enforceable bar- gain (where all parties receive some benefit). There is widespread consensus in the current jurisprudence that these principles apply in em- ployment contexts. When amending employ- ment agreements, companies should ensure the transaction includes a benefit for the worker. That benefit could take many forms, including an increase in pay, a promotion or a one-time signing bonus (even a very small one). Case law shows that mere continued employment is not sufficient, as the worker would already be enti- tled to employment through the relevant notice period for dismissal; but a promise to extend employment beyond the notice period could be valid consideration. Courts typically don't assess the adequacy of consideration but treat it as an all-or-nothing thing — the proverbial peppercorn will do. Numerous reported decisions showcase em- ployers that thought they had amended their workers' contracts only to find the new terms unenforceable in court. In Holland v. Hostopia Inc., the employer attempted to add a termina- tion clause to the employee's contract after he'd already started working. The court held it did not apply and the employee was entitled to damages in lieu of reasonable notice. In United Rentals of Canada Inc. v. Brooks, the court found that a non- competition clause was not enforceable even though the employee had signed the new con- tract. In spite of the employee's agreement, the benefits of the new terms were one-sided. Rosas v. Toca The Rosas case portends a significant shift in the approach to contract variations, being the most prominent recent Canadian example of a court dispensing with the requirement of consider- ation for post-contract promises. The case involved a woman, Enone Rosas, who lent $600,000 to a friend, Hermenisa- bel Toca, on condition that the loan be repaid within a year. Instead of paying, each year Toca asked for another year to pay, and each time Rosas agreed. After seven years, Rosas finally sued. Toca argued that the limitation period to sue (being at the time six years) had expired. Her position was that the extensions were mere promises but not amendments to the contract, as no new benefit flowed to Rosas in exchange for the promises to pay "next year." The contract not having been validly amended, Toca would have been entitled to a limitations defence. The court found that insisting on the require- ment of consideration in this instance would work an injustice. The innocent party relied on the promises of the debtor, only to have her for- bearance used against her to ground a limita- tions defence. The court determined that it was time to reform the doctrine of consideration, stating: "When parties to a contract agree to vary its terms, the variation should be enforce- able without fresh consideration, absent duress, unconscionability, or other public policy con- cerns, which would render an otherwise valid term unenforceable." The jurisprudence stemming from Rosas (and related decisions) is embryonic. It seems likely to take years for the implications of the shift to become clear. The Quach wet blanket The idea that post-contract variations no lon- ger need consideration is appealing for many employers, which often see the requirement as cumbersome and impractical. The ability to amend employment agreements without a fresh benefit flowing to employees would make managing the workplace easier. It could afford companies greater power to control costs (for example, by withdrawing benefits); to limit li- ability (such as by implementing new termina- tion clauses); or to impose favourable restric- tions on workers (such as non-competition agreements, protecting proprietary interests, but also rendering workers more dependent). However, the Quach case suggests that the ef- fect of Rosas will either not be felt in employ- ment law or will be more limited than in com- mercial contexts. The plaintiff, Quach, was hired under a one- year fixed-term contract with Mitrux Services Ltd. Before Quach started the new job but after he had already quit his old job, the company pre- sented him with a new contract, which provided that he could be dismissed on four weeks' notice. Two days after the new contract was signed, and still before Quach started working, the company terminated the contract. On appeal, it argued that the second contract applied and the worker was only entitled to four weeks' pay, not damages for the duration of the initial fixed term. The B.C. Court of Appeal ruled that the sec- ond contract was unenforceable for lack of con- sideration. Moreover, it specifically held that the Rosas analysis did not apply to Quach's situa- tion, opting to rely instead on well-established pre-Rosas case law affirming "the general princi- ple that modification of a pre-existing contract will not be enforced unless there is a further benefit to both parties." "It seems to me that the import of Rosas may not change the authority of Singh [i.e. represent- ing the established law on consideration] in the nuanced world of employer and employee con- tractual relationships," said the court. "Whether it does is an interesting question that can and should be left to another day because, in my view, the Second Contract presents much more than a Rosas-style variation in any event." The court's discussion of Rosas was obiter dicta — there is plenty of scope here for judicial in- novation and it seems likely that future cases will test the boundaries of the Rosas approach in workplace contexts. It remains to be seen how the jurisprudence will settle. But Quach indicates that a carte blanche for companies to make changes without value flowing both ways is unlikely. Prudent employers may wish to im- plement tried-and-true processes for contract variation and let others provide the test cases as this area of law develops. For more information, see: • Rosas v. Toca, 2018 BCCA 191 (B.C. C.A.). • Quach v. Mitrux Services Ltd., 2020 BCCA 25 (B.C. C.A.). • Holland v. Hostopia Inc., 2015 ONCA 762 (Ont. C.A.). • United Rentals of Canada Inc. v. Brooks, 2016 ONSC 6854 (Ont. S.C.J.). « from NEW UNCERTAINTY on page 1 Consideration remains requirement for employment contract changes ABOUT THE AUTHOR Matthew Tomm Matthew Tomm is a sole practitioner in Calgary. He advises employers and employees in all aspects of employment and human rights law. Tomm can be reached at (430) 264-4855 or tomm@matthewtommlaw.com.

• Cover