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lack of consideration

What happens to employment contracts when an employer sells the assets of its business?

The Court of Appeal for Ontario has confirmed that in an asset sale, a purchaser’s offer of employment to a seller’s employee can constitute consideration for changes in an employment contract — including a new termination clause.

 

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Fresh consideration and employment contracts

When a company promotes an employee, the employer should provide the employee with a new contract to sign prior to allowing the employee to commence his or her duties. In that way, the company is providing the employee with “fresh consideration” to make the contract enforceable. Consideration is the legal word for the exchange of something of value to make contracts enforceable and in a promotion it takes the form of the increased salary that comes with the new job. If the company allows the employee to be promoted and then has the employee sign an employment contract after the promotion has already taken place, there is a chance the employee can argue the terms of the contract that were not discussed pre–promotion should not be enforced for lack of fresh consideration rendering the terms of the contract unenforceable.

 

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