The “Fresh Consideration” Doctrine

The need for “fresh consideration” has long been a fundamental requirement to the enforceability of contracts. More specifically, in the absence of exceptional circumstances, an existing obligation or duty to perform cannot be used as valid consideration for the creation of a new contract. The legal doctrine of “fresh consideration” is often invoked in the employment law context to challenge contracts that have been executed subsequent to the establishment of an employment relationship.

In the recent decision of Riskie v. Sony of Canada Ltd., 2015 ONSC 5859, the plaintiff attempts to invoke the “fresh consideration” doctrine to avoid being subject to the consequences of a fixed-term contract that was signed well into an existing employment relationship.

The Facts

The facts of the case are relatively straightforward.  Mr. Riskie was a valued and highly paid Toronto-based manager of Sony of Canada Ltd. (“Sony”). He was employed by Sony for approximately 25 years without a written contract of employment.  In the spring of 2014, Mr. Riskie advised his superior that he and his family were moving to Ottawa.  Mr. Riskie requested that Sony accommodate his relocation by allowing him to work from home and commute to Toronto regularly and on an as-needed basis.

Sony’s President and CEO was firmly opposed to the prospect of senior employees carrying out their duties pursuant to a telecommuting structure. However, Mr. Riskie was provided with a draft contract and advised that Sony would accommodate the request on the condition that he became a fixed-term employee.  Mr. Riskie moved to Ottawa and continued to carry on his previous duties remotely as the parties negotiated the terms of the contract. Several weeks following his relocation, Mr. Riskie signed an agreement containing a fixed end-date with no promise of renewal.

In or around October 2014, Sony’s North American operations underwent restructuring and Mr. Riskie was advised that his contract would not be renewed. Upon the cessation of his employment, Sony’s payments to Mr. Riskie were limited to his statutory severance and termination entitlements.  Unsatisfied, Mr. Riskie alleged that the new fixed-term employment agreement was void for, inter alia, lack of “fresh consideration” and brought a motion for summary judgment seeking to fix the period of common law reasonable notice to which he was entitled.

No Consideration for Mere Continuation

It is often declared that the mere continuation of employment is not sufficient consideration to support a new contract of employment (see Techform Products Ltd. v. Wolda, [2001] 150 O.A.C. 163 (Ont. C.A.) and Braiden v La-Z-Boy Canada Ltd., 2008 ONCA 464). Ontario courts have applied the “fresh consideration” doctrine to void employment contracts that have been signed after (i.e. sometimes even a few days) an employee has already commenced their employment.  Such employees are held to be governed by oral agreements that cannot be modified by subsequent written agreements without “fresh consideration” (see Rejdak v. Fight Network Inc., [2008] 174 A.C.W.S. (3d) 150 (Ont. S.C.J.) and Tossonian v. Cynphany Diamonds Inc., 2014 ONSC 7484).

The Fixed-Term Agreement was Valid

In upholding the validity of the fixed-term employment contract, Justice Dunphy took note of the foregoing legal principles and found that they were inapplicable to the case before him. Justice Dunphy made several key findings in this regard.

First, Justice Dunphy found that in accommodating Mr. Riskie’s request and agreeing to allow the performance of his duties from Ottawa, Sony provided “ample consideration to support the validity of the contract”.

Second, the fact that Mr. Riskie had already commenced performing his job from Ottawa prior to the formal execution of the employment contract was found to be irrelevant given that Mr. Riskie understood Sony’s position on the matter at all material times (i.e. that the telecommuting proposal would only be permitted on the condition that it was subject to a fixed-term agreement).  In this regard, Justice Dunphy noted:

The lack of consideration argument appears to be premised on the alleged acceptance by Sony of the “fait accompli” of the plaintiff having moved to Ottawa before signing off on the contract which he had in his hands and was actively continuing to negotiate. This strikes me as a very artificial and unreasonable interpretation of the facts and one which is utterly at odds with the expectations and understanding of both parties.

Neither party had any belief that the matter was somehow closed the day Mr. Riskie moved without having signed the contract presented to him. Notwithstanding that he commenced carrying out his duties from Ottawa, the process of discussion continued and the alleged “fait accompli” was nothing of the sort.

Finally, Justice Dunphy emphasized that “this was not a case of ‘take it or leave it’, it was a case of ‘take it or return to Toronto’. In other words, Mr. Riskie was aware that the former arrangements remained available to him. The choice was not between employment and unemployment – the choice was between indefinite employment in Toronto subject to termination upon reasonable notice and employment in Ottawa subject to a fixed-term contract.

Accordingly, Justice Dunphy held that there was no wrongful termination and dismissed the claim.

Key Reminders for Employers

To avoid having otherwise enforceable contracts deemed void for want of consideration, Justice Dunphy’s decision provides several key reminders to employers:

• ensure that employment contracts are signed before employees commence employment;
• prior to amending the terms of an oral or written contract of employment, offer some form of benefit (i.e. it does not have to be monetary) as “fresh consideration” for the amendment; and
• when an employee requests a modification to their employment terms that necessitates a subsequent negotiation between the parties, emphasize that the employee has an option of maintaining the existing relationship on the same terms.

Titus Totan

About the Author: Toronto employment lawyer Titus Totan supports both employee and employer clients in all areas of employment law, including employment standards, contractual and implied obligations, terminations, workplace investigations and workplace human rights.