Employee signed contract after starting work

Oral contracts can be binding
By Brian Kenny
|Canadian Employment Law Today|Last Updated: 11/22/2011

Question: Due to administrative issues, we were unable to get an official employment contract signed by a new employee until after he started. What do we need to do to ensure the contract is valid?

Answer: Employment relationships are based on the law of contract. A contract of employment can be oral or written. Both types of agreements are valid and enforceable and may be comprised of both “express” and “implied” terms. The terms which have been openly discussed and negotiated between the parties are the express terms of the contract. Other terms may be implied into the contract in certain circumstances or through the operation of other existing legal principles such as employment standards.

Regardless of whether they are oral or written, all contracts require three elements before they will be recognized as contracts. There must be an offer, an acceptance and consideration. Consideration is present when both parties have given something in exchange for the bargain that was reached in the agreement. A contract is not enforceable without valid consideration. It is not necessary for both parties to give up something of equal value, but the contract must contain mutual promises. For example, the employee promises to work and the employer promises to pay her. The most important point in the above situation is that consideration must pass at the time that the agreement is reached. If an employment contract is entered into after the employee has already begun working, then no new consideration has been given by the employer in order to validate the written employment contract. For example, the employee may be asked to make additional promises under the written contract, such as protecting confidential information, but the employer offers the same job at the same rate of pay and therefore no new value passes to the employee.

Courts have held that written contracts, if entered into after the employment has commenced, may be void for lack of consideration. However, it may be the case that only the amendments, or the additional promises the employer sought, will be void if all else remains the same. One example involves notice of termination provisions. Unless otherwise agreed, the common law principles on the length of a notice period will apply to an employment relationship. If an employer wishes to specify that a particular notice period applies in the written agreement, but no new consideration is provided to the employee, that provision could be void and the common law principles will continue to apply.

The solution to this situation involves providing the employee with something of additional value for executing the written agreement. For example, the employer could agree to refrain from terminating the employee for a certain period of time, offer increased pay or include a signing bonus. It is important to demonstrate that any additional compensation is over and above what the employee could expect (such as an annual pay increase). Whatever the consideration, it must be clear the promises made are additional promises to those made orally at the time the employment commenced. It is also important to make sure the changes do not take effect until after the contract is signed.

These issues are important to consider when updating employment contracts as well. New consideration is always necessary to make the contract enforceable. If an employee’s duties change significantly, it would be prudent to have the employee execute a new employment contract which includes new consideration. 

Brian Kenny is a partner with MacPherson Leslie and Tyerman LLP in Regina. He can be reached at (306) 347-8421 or bkenny@mlt.com.

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