New Employment Contract Contains Enough Variance From Existing One to Render it Void

Written on behalf of Peter McSherry

Losing a job can be a complicated process to navigate. In addition to the financial stress, individuals may be confused and unaware of their rights upon termination, such as how much payment in lieu of notice is available to them and whether their employment agreement or length of service with the employer, has any impact on that. 

A recent decision from the Ontario Superior Court of Justice serves as a fresh reminder that even if someone contracted out of common law notice, which typically provides for more payment in lieu of notice than the Employment Standards Act, that doesn’t necessarily mean their pursuit of damages will be limited to what is statutorily available. The case also illustrates how courts analyze the calculation of severance in situations where an employee works for a subsequent company which takes the place of the bankrupt employer. 

Employee asked to sign new employment contract

The plaintiff, an employee, in Chin v. Beauty Express Canada Inc., was employed part-time for a beauty salon located inside a busy Toronto department store. She originally worked for a business hereinafter referred to as “PS”, which operated the salon from 1999 until 2013. When PS went bankrupt, “BE” was successful in its bid to open a salon inside the store. The plaintiff then worked for BE from 2013 until 2019, when she was terminated without cause at the age of 69. 

The employee stated that when she started to work for BE she was employed full-time but her hours were eventually reduced to part-time, which she expressed her dissatisfaction with. In February 2018, the employee was presented with a document titled “Employee Policies and Agreements.” Her manager asked her to sign and return the document before the end of her shift.

Contract provision prevents employee from making claim against employer

One of the clauses in the document was a termination policy, which stated that the employer may terminate an employee at any time. Further, the employee agrees to make no claim against the employer for termination pay or severance pay outside of what is mandated by the Employment Standards Act. 

At trial, the employee told the Court that English was her second language and she had no chance to read the document carefully. While some portions of the document raised concerns, the employee claimed that she felt as though she had no choice other than to sign the document and return it to her manager before she left work for the day. By signing the document during her shift, the employee did not obtain independent legal advice on the document.

Can the employment contract be binding?

The employee claimed that she wanted to take the document home for a thorough review, but was afraid to do so in case it created trouble for her at work. She was aware that the terms of the agreement seemed to differ from the policies in place up until that point and communicated this to her manager. However, she said her manager was not interested in hearing that complaint. 

Justice Morgan stated that when an employer offers a new employment agreement to an employee, and the changes to notice provisions are considered a “tremendously significant modification of the implied term of reasonable notice”, consideration must flow from the employer to the employee to support the terms. The Court held that it is clear that the employee received no consideration in exchange for signing the contract. 

The Court rendered the notice clause void due to lack of consideration and held that the employee was entitled to notice of termination in accordance with the common law. 

Calculating employee’s length of service

The next issue for the Court was to determine how to calculate the employee’s length of service with the employer in order to calculate an appropriate award for payment in lieu of notice. The employee provided little detail about her day-to-day responsibilities under the current employer or the one that preceded it. She told the Court that her most recent employer was the direct successor of the one that held the same space prior to bankruptcy and that her transition from one to the other was seamless without a change in her responsibilities, and no communication of bankruptcy was made to the employees. 

Justice Morgan articulated that legally, there is no continuous employment from one employer to the other, but at the same time, a portion of the years which the employee spent working for PS should count towards her notice. The Court based this finding on the fact that the successor employer did not have to hire or re-train a new employee to step into the employee’s role. The Court held that the employee was entitled to 10 months’ notice for a combined 20 years between both employers. 

Contact Peter McSherry for Advice on Proper Notice Periods and Wrongful Termination

The employment law team at Peter A. McSherry Employment Lawyer understands the questions and concerns people may have when faced with a sudden loss of employment. We provide clients with a personalized assessment of their case and help them understand their rights and options available to them after employment termination. We regularly represent employees in employment law matters, including wrongful dismissal and provide advice on matters such as severance packages. We also assist employers by providing strategic advice and risk management on ensuring they are in compliance with applicable employment laws. Contact us by phone at 519-821-5465 or by online to schedule a confidential consultation.