Negotiations are commonplace during the hiring process. However, there is a risk that such negotiations could inadvertently make subsequent written employment contracts unenforceable.
The recent case of Sui v HungryPanda Tech Ltd., 2024 BCSC 1856 [HungryPanda Tech] establishes that there are certain situations where negotiations prior to an employment relationship, which end in an agreement between the parties, may constitute an employment agreement. In these circumstances, fresh consideration will be required when a formal written agreement is entered, particularly if the formal written agreement adds onerous terms, such as a termination clause limiting the employee to Employment Standards Act (“ESA”) minimum notice periods. If no fresh consideration is provided, the written agreement will not be enforceable.
If you are wondering what fresh consideration is, or why employers should have termination clauses which limit employees to ESA minimum notice periods, see our previous legal alerts:
· Employment Contracts 101: Get it signed… on time!
· Employment Contracts 101: Common Law Reasonable Notice
The case of HungryPanda Tech concerned an employee who was suing their former employer for wrongful dismissal after 18 months of service. Before the employee was hired, the parties engaged in negotiations over email about the terms of the future employment relationship. The employee eventually accepted the offer, and the employer sent a formal written agreement the following day. The written agreement purported to limit the employee to the ESA minimum notice period, which would be 2 weeks’ notice for 18 months of service, but the Court needed to decide if the written agreement was enforceable. If the written agreement was not enforceable, the employee would be entitled to the common law reasonable notice period, which is assessed based on a number of factors, but is generally significantly longer than the ESA minimum notice period (six months in this case!).
The main questions the Court needed to answer were:
1) Did the email negotiations and subsequent acceptance create a standalone contract?
2) If they did, was there fresh consideration for the subsequent written employment agreement?
The Court in HungryPanda Tech found that the emails contained all necessary elements to form an employment contract (including the job title, place of employment, start date, salary, pay periods, stock options, and the probationary term.) The Court explained that a negotiated offer is less likely to be considered an employment contract if the employer expressly states that a formal written agreement must be executed at a later date.
However, like in the case of HungryPanda Tech, the negotiated offer may still be considered an employment contract if the Court finds the offer was not conditional on the formal written agreement being executed. The Court found the accepted negotiated offer was only conditional on the employee, proving they could legally work in Canada, and by implication, it was not conditional on a written agreement being executed.
Because the Court found the negotiations led to an employment contract, the subsequent written agreement would need fresh consideration to be enforceable. Without fresh consideration, the termination clause would not be binding, and the employee would not be limited to the ESA minimum notice period. The Court found there was no fresh consideration because the employer had failed to prove the employee had received a material advantage from the written employment agreement. Therefore, the termination clause was unenforceable and awarded the plaintiff damages in lieu of notice based on a common law reasonable notice period of six months
If you’d like to learn more about how to create enforceable employment contracts, please reach out to Claire MacLeod at [email protected].
