Consideration is required where the employer attempts to introduce new terms beneficial to its position, as discussed here.
What analysis should be made when it is the employee who seeks to enforce an employer's promise? For example, the employer may offer a salary raise or other monetary benefit or "agree" to provide an enhanced pension or improved severance payment. Must there then be consideration to create this bargain?
The cases below turn on this issue. In each instance, the court considered the context of an offer made by the employer of a positive benefit to the employee with the sole and only consideration to be assessed as continued employment.
There could be advanced an argument of proprietary estoppel which would be difficult, to say the least. Promissory estoppel, is however, normally considered a defence and not actionable. Alternatively, there may be argued a tort claim of misrepresentation, or forbearance, but these arguments miss the fundamental point, namely, that the employment relationship is not capable of showing consideration to this issue.
As discussed below, the plaintiffs in Kornerup v Ratheon, a 2007 trial decision of the British Columbia Supreme Court, argued that the oral representations made by the employer were actionable. The argument was based on an alleged representation made by the employer as to its future severance practice.
The trial judge found that the representation was actionable in what was referenced as a “unilateral contract”, relying upon an American authority which was cited in Sloan v Union Oil Co of Canada.
In the Sloan case, the plaintiff had argued that he was entitled to a termination payment of $1,400. This allowance had been amended from time to time. It was calculated based on a formula and was payable only for termination without cause.
Wilson, J. had found that the offer was shown by the various company brochures and that acceptance was not displayed directly but rather by continued employment. The plaintiff's continued employment was determined to be proper consideration.
The trial decision in Kornerup was later set aside by the Court of Appeal, but is nonetheless informative.
The plaintiffs rely upon a different line of authority that begins with Sloan v. Union Oil Co. Of Canada. In that case, the plaintiff sued the defendant to recover a termination allowance that he claimed was a term of his employment. The defendant’s policy manual contained a description of its termination allowance that was updated from time to time. In March 1945, the policy was updated for the last time and a bulletin sent to all employees describing the changes. In August 1945, the defendant sold its business to B.A. Oil and the defendant met with the employees to advise them of the sale, of their impending termination, and to encourage them to join the new company so as not to paralyse its business. Some time later, the employees received their termination letters and a letter from the defendant advising them that the termination allowance would be payable should they leave B.A. Oil before December 1, 1945. The plaintiff did not leave B.A. Oil until 1950, at which time he sued the defendant for the termination allowance.
[25] Wilson J. described the issue as whether there was a contract consisting of offer, acceptance, and consideration. He concluded the offer was clear; the defendant had offered the plaintiff a termination allowance if he stayed on with the company until he was discharged without cause (at 233). The question was whether the plaintiff had accepted the offer and whether there was consideration for the termination allowance. On these matters, Wilson J. concluded that the conduct of the plaintiff, in staying on until he was discharged, constituted both acceptance of the contract offered by the employer and consideration for it:
…It is equally clear there was no verbal or written acceptance of the offer, no consideration by way of a promise that he would so continue to serve. Therefore, if a consideration moved from the plaintiff to the defendant, that consideration was not a promise but a performance, the doing of an act. For undoubtedly he did fulfil the terms of the defendant’s offer, he did serve them until dismissed, and it is this, and this only, that must be relied on as consideration.
Now he was, of course, already bound to serve them during his period of employment and the consideration for that service was his salary. But he was not bound to continue to serve them until he was dismissed…By staying until he was discharged he did something that was not required by his contract of employment and he says that his knowledge of the provision for a termination allowance was one of the factors which induced him to continue his employment. (at 233)
[26] Wilson J. adopted the American term of “unilateral contract” described in a passage from Scott v. Duthie & Co. (1923), 216 Pac. 853 (Washington Supreme Court), which was quoted with approval at 241:
“The offer and its acceptance by compliance with its terms created a unilateral contract, which is binding upon the offerer. The principle of mutuality of obligation, as generally applied in the law of contract, has no place in the consideration of unilateral contracts. Such contracts are not based on mutual promises or obligations. … Accordingly, where one makes a promise conditioned upon the doing of an act by another, and the latter does the act, the contract is not void for want of mutuality, and the promisor is liable … for upon the performance of the condition by the promisee, the contract becomes clothed with a valid consideration. …
[27] Finally, Wilson J. held that the employer, having made the promise, could not withdraw it or modify it after the employee was terminated and had effectively performed his obligation. The rights of the employee vested at the date of the termination: Sloan at p. 245.
The trial judge in Kornerup also referenced an earlier decision of Ballard v Canadian Fishing which showed very similar facts. In that decision the court found offer, acceptance and consideration in the employee’s apparent decision not to resign their employments.
In Ballard the employer had, however, conceded that there was a valid contract:
In 1980, the defendant sold all of its assets in B.C., except the Sterling shipyard division. When the Sterling employees discovered the proposed sale and the pending layoffs, they were very concerned about their own job security for the future. Knowing of this concern, the defendant circulated a letter to the employees, including the plaintiffs, assuring them that for the next two years they would receive a “proper settlement allowance in accordance with the Company’s current policy relating to severance, should further restructuring of the Company result in termination of employment”. The defendant’s counsel conceded that these letters formed part of the contract of employment and that, by continuing to work for the defendant, the plaintiffs provided consideration for the severance allowance (at para. 3). Referring to the ratio of Sloan, Spencer J. appears to have concluded that this was a necessary concession on the law.
Spence J., the trial judge in Ballard, found that the consideration required was present by the employee’s apparent decision to remain employed:
At the time the defendant wrote its letter it was anxious to keep its remaining employees, including the four plaintiffs. It was at common law under an obligation to give them proper notice or pay them damages in lieu in the event they were dismissed without cause. The letter was intended to persuade them to stay and it is only reasonable to interpret it as offering them something in exchange for their staying. That something must have been more than their common law right or there would be no point to sending the letter at all. …
The Court of Appeal reversed. 1 This decision was based on lack of consideration. Continued employment was not sufficient:
Given the nature of the offer, there would have to be some additional consideration given by an employee, beyond the existing terms of the employment, to constitute acceptance by conduct. Such consideration may lie, not in the employee continuing to work for the company, but in continuing to do so until laid off. In that event, it would be the employee’s performance of the condition contained in the offer that would constitute the consideration the employee gives and amount to acceptance of the offer by conduct.
The appellate court did reference the need for evidence to demonstrate the plaintiff's willingness to remain employed and not resign presumably, presumably to show a forbearance argument:
[11] This is not a case where an employee can be said to have made any alteration in her performance of the employment contract because of the assurances given. Had Ms. Ciric said she was leaving Raytheon in January 2004 and been induced by the company’s assurances to stay on, different considerations might well have arisen.
This issue was addressed in a decision of the B.C. Court of Appeal in 2013. 2 The plaintiffs were retired employees of the predecessor company who had asserted a contractual entitlement to certain benefits which had been promised in the course of their employment. The issue on appeal and at trial was whether there had been consideration given by these employees for such an enhanced benefits. The trial judge had found that the benefits were part of the compensation for their services which was provided as deferred compensation. The trial judge had relied upon the above decision in Sloan to find an enforceable contract.
The B.C. Court of Appeal looked to the issue of the existence of a contract which did not meet the traditional formulation of offer followed by the communication of acceptance. Acceptance, it found, need not be by direct words of acceptance but may be shown by conduct showing acceptance. This is not a unique proposition. However, it also stated that the conduct of remaining employed through to retirement age was indeed consideration to support the contract. This Court upheld the finding of a binding contract. The consideration was continued employment;
It should be put this way – by remaining with MB to retirement, each respondent accepted MB’s offer and was entitled to the promised compensation. It has to be presumed that compensation for labour performed prior to retirement would have been greater if the promise had not been made. MB clearly intended the promise, once accepted by conduct by each respondent, to be a contractual term of employment and, therefore, to be binding and enforceable.
In any event, courts have repeatedly held that employee benefits, even those that were voluntarily introduced by an employer, are enforceable as a matter of contract. Although offered unilaterally, they become contractually enforceable as employees continue to work.
Much to the same end is a 2013 decision of the Ontario Superior Court in certifying a class action, 3 on this occasion stating that the law had now developed this proposition to a general rule:
In any event, courts have repeatedly held that employee benefits, even those that were voluntarily introduced by an employer, are enforceable as a matter of contract. Although offered unilaterally, they become contractually enforceable as employees continue to work. In this case, the evidence shows that GMCL consistently described the benefits as a fundamental component of the salaried employees’ compensation package. GMCL consistently stated that the benefits would provide security for salaried employees’ families and that the benefits enhanced GMCL’s competitive position in attracting and retaining employees.
In this case, the evidence shows that GMCL consistently described the benefits as a fundamental component of the salaried employees’ compensation package. GMCL consistently stated that the benefits would provide security for salaried employees’ families and that the benefits enhanced GMCL’s competitive position in attracting and retaining employees.
It makes no sense to find consideration from continued employment in this context and not in the reverse when it is the employer which seeks to enforce a term to its benefit. 4
These cases demonstrate the principle that is awkward for the plaintiff to show consideration when offered a benefit from the employer in the context of an existing relationship.The conflict is these two positions has not been noted, save in the dissent of Slattery, J.A., discussed immediately below.
Does this mean that every offer of a salary increment, or similar benefit is unenforceable unless forbearance may be shown? There is a fundamental unfairness in this context which cannot be addressed by the use of the principle of consideration.
There may well be an argument based on Bhasin that it would be unfair to withdraw the "offer" of enhanced employment benefits even in the absence of proper consideration. This same submission in concept was accepted by the Nova Scotia Court of Appeal 5. As noted in Bhasin and as was applied in this 2015 decision, regard should be had to the "legitimate contractual interests" of the party:
The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner. While “appropriate regard” for the other party’s interests will vary depending on the context of the contractual relationship, it does not require acting to serve those interests in all cases. It merely requires that a party not seek to undermine those interests in bad faith. …
One of the findings made in this case was that the insurer's withdrawal of rehabilitation services, one which it was not contractually bound to make, yet, nonetheless did, was an act of bad faith.
This appears to be a much stronger submission that unconscionability, one also rooted in fairness, but much more difficult to apply. Unconscionability is reviewed here.