A regular issue for employers is whether the provisions in their employee handbook are enforceable in the same manner as an employment contract. Many employers are surprised to find that they are not.
A typical case showing an example of this type of unwelcome surprise is the case of McLean vs. The Raywal Limited Partnership, 2011. In that case, the plaintiff employee claimed that she had been wrongfully dismissed. The employer claimed that she was laid off with an intention to recall. The employee had been recalled but did not accept it. Accordingly, the employer considered the plaintiff to have abandoned her job.
The employer’s defence relied on the fact that it had conducted her layoff (as it had in the past) in accordance with the procedures laid out in its employee handbook.
However, at the time of her initial hiring in 1998, the plaintiff had not been advised of the existence of the employee handbook nor did her employment contract mention it.
Ten years later, the plaintiff did accept a new position in which she signed a document indicating that she had read and would abide by the policies of the employee handbook, but the new position did not include any change in salary or other benefits to the plaintiff.
Accordingly, the Court found that the provisions of the handbook were not enforceable against the plaintiff.
The reason for this is one of basic tenets of contract law. When parties enter a contract, there must be an offer, an acceptance and consideration, the latter meaning benefits exchanged between the parties. In a typical contract of employment, the consideration exchanged is the employee’s labour and the employer’s promise of wages. Without consideration, a contract is invalid.
In this case, the employer had, at the time that the initial contract took place, not informed the plaintiff of the existence of the handbook or the policies. Accordingly, she had not agreed to be bound by them at the time that she received the consideration (the promise to pay wages) in her initial contract. Having the plaintiff sign the document after the fact did not make it enforceable, as the consideration had already flowed between the parties. In order to make it enforceable, further consideration would have to flow in order to have compensated the plaintiff for agreeing to be bound by additional conditions. The second contract included no consideration.
Accordingly, if the change in position had included an increase in salary at the time that the plaintiff had signed the new contract, there would have been sufficient consideration to consider the plaintiff bound by it. However as there was no change in consideration, there was no ability to hold the plaintiff to the contract.
The take away for employers is to make sure that whenever a change to working terms and conditions is created beyond the initial terms of the employment, some form of consideration must change hands.
Interestingly, the classic law of consideration states that the courts will not consider the “sufficiency” of consideration. Accordingly, there is an argument that extremely minor consideration could be sufficient for a change in the employment contract. Employers are well-advised to get legal advice whenever they are contemplating introducing an employee handbook or making changes.
Andrew D. Taillon
Cox & Palmer
Barrister & Solicitor