Employers have reacted to this rash of cases by scrambling to have their employees sign new employment contracts. But are those new agreements any more enforceable than the old? I am finding the answer, in many cases is, “no.”

Simply signing a new agreement is insufficient if its terms are themselves legally invalid. That is why so many termination clauses have been ruled unenforceable, usually for violating in some small way the Employment Standards Act. Other clauses, such as non-competition covenants, have long been found to be void at law on public policy grounds, unless they comply with very narrow, specific rules.

To be clear, employers are not introducing these contract changes for the well-being of their employees. Unless you are a C-suite executive with personal bargaining power, no employee should want an employment contract. They are drafted for the very purpose of taking away the generous rights which courts otherwise bestow upon employees.

The task of most employees is therefore to avoid signing an employment contract. Ironically, if an employee has a lawyer review the contract for them, especially if they negotiate any changes, that actually worsens the employee’s legal position as now the employer will assert that the employee had independent legal advice and the contract is the product of a true negotiation. That will eliminate some of the defences which employees otherwise would have had.

One of the biggest defects in these new contracts is a lack of what is called “consideration.”

Consideration means that the employee is getting something new in return for what they are giving up. The courts historically have taken the position that the value of that “something new” is irrelevant. In the old, initial British cases, they referred to a party receiving a peppercorn as sufficient consideration. In other words, virtually nothing at all.

It is because of the need for consideration that smart employers have employees sign new contracts at raise time or in return for a bonus. But the mistake they make is not making clear that that bonus or salary increase is in return or in exchange for the new onerous provisions, such as a termination clause or a clause eliminating stock options or bonuses from an employee’s dismissal entitlements. That is why I always recommend that employers inform the employee that they do not have to sign the new contract with its various terms but, if they do not, they will not receive the raise or bonus.

The Matthews decision provides additional requirements, one being that the employee has to clearly understand the onerous provisions they are agreeing to so that if they are buried somewhere on page 29 of a 40-page document and not clearly brought to the employee’s attention, that provision will be unenforceable.

Lack of consideration in employment contracts often arises when an employee receives and signs an employment contract on their first day of work with onerous provisions never previously agreed to, such as termination or non-competition provisions. They are always unenforceable because there is no consideration for them, i.e. the employee has received nothing new in return. After all, they would not have commenced employment without already having agreed to the terms of that employment. By the time they arrive, it is too late to add new ones without additional consideration.

A just-released decision of the Ontario Court of Appeal, Goberdhan vs. Knights of Columbus, raises questions about whether a peppercorn or, to be more specific, a nominal increase, will ever constitute consideration in exchange for onerous new provisions in a new employment contract. I have always believed that simply, for example, providing employees with the amount of their statutory entitlements for termination is not proper consideration, because they were entitled to those amounts anyway. For that reason, I have long advised clients to ensure their contractual termination provisions provide at least a little more than minimum standards entitlements.

In this new decision, the company put in a new provision with obligatory mediation, an arbitration clause and a change from Connecticut to Ontario as the law of the contract. The employer argued that these changes provided the employee with consideration in return for a new onerous termination clause. The employee argued that these changes offered him nothing at all, and all he was getting in return for signing the contract was continuing employment insofar as he would be terminated if he did not sign it.

The court said that continuing employment, by itself, was not consideration. The court found that these changes were not consideration.

“Giving up the right to trial by jury, to participate in a class action, and to institute a court action are a detriment to the employee, and the change of law (from Connecticut to Ontario) could not be considered a benefit without evidence and, to the extent he was an employee, Ontario law would prevail in any event,” the court ruled.

The point is that the court was evaluating whether the changes actually benefited the employee and, if it did not, it was not consideration. But if the court will balance the relative advantages, then how could a new termination clause taking away the employee’s right to sue for, say 12 or 18 months in wrongful dismissal damages, in return for, say, ESA termination pay, ever be compensated for by a three per cent salary increase or a $2,000 bonus?

If this is the case, virtually all of these new employment contracts will be similarly invalid. After all, employers are introducing these clauses to remove substantial employee rights and the last thing they intend is to provide something of equal value in return.