Employment Contracts: Formation and Modification

The employment contract is the foundation of the employment relationship. A well drafted contract should set out the pertinent terms of the relationship: term, duties, remuneration (wage and bonus structure), probationary period (if any), benefits, holidays and the termination process. It can also include or reference non-disclosure, non-competition, or non-solicitation agreements. This article will explore the formation and modification of the employment contract.

An employment contract need not be written to be enforceable, it can be verbal or based on the conduct of the parties (Employer and Employee). However, a written contract is the best way to ensure the parties have reached consensus on terms. In contract law, “consensus”, or the Latin phrase “consensus ad idem”, refers to a meeting of the minds between the parties where all understand and accept the contractual commitments made by each other. For the contract to be binding, consensus is required. 
 
Negotiation Phase: During the hiring or negotiation stage, the Employer or the Employee might make certain representations; an Employee may state he or she is willing to work overtime, or the Employer may state he or she is flexible when it comes to the Employee taking time off. While these types of statements might induce the Employer or Employee to enter into the contract, they do not form part of the contract unless specifically included in the written agreement. To help ensure each party receives exactly what they bargained, we strongly recommend having a lawyer review the employment contract before it is signed.
 
Terms: The terms of the contract can also be described as the “consideration”. In contract law, “consideration” is some right, interest, profit or benefit accruing to the one party or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other. For example, an Employer who agrees to pay an Employee $15.00 per hour provides the $15.00 as consideration for one hour of the Employees work. In the same way, the Employee provides one hour of his or her time and effort as consideration for the $15.00. Consideration is a fundamental element of an enforceable agreement. In an employment contract, the package of consideration can include, but is not limited to, benefits like health or dental coverage, bonuses, vacation time, use of a company vehicle, and the agreement to a non-disclosure agreement.
 
Modification of Terms: When both parties have agreed to the terms, the law does not permit one party to change or add terms without providing *new* consideration to the other party.  
 
For example, where an Employer reduces the length of the work week, reduces the Employee’s severance entitlements, reduces the Employee’s compensation, or substantially changes the Employee’s duties or place of work, the Employee is required to provide new consideration in return in order to render the modification legally enforceable.  

From time to time, Employers will unilaterally change the terms of the employment contract and then threaten to fire the Employee if they do not agree to the new terms. In such a scenario, Employers are unable to assert that the forbearance of termination is the new consideration. If the Employer wants to rewrite the contract and is truly willing to terminate the Employee if he or she does not agree, the Employer must provide proper notice of termination or pay in lieu thereof.
 
A word on interpreting a contract: The Courts have long recognized the doctrine of contra proferentem: where there is ambiguity in the wording of a contract, the interpretation that woks against the interest of the drafter will prevail. This is an important point for Employers who draft their own contracts. Employers are strongly encouraged to have an employment lawyer review or draft their employment contracts to avoid ambiguities.

Check back for future articles on employment, including: Termination of the Employment Contract; Release and Non-Competition Agreements; Statutory Minimums; the (Employer’s) Duty to Accommodate; and “Just Cause”.

Disclaimer: The content above is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor client relationship. The views expressed are solely the authors’ and should not be attributed to any other party. The author makes no guarantees regarding the accuracy or adequacy of the information contained herein. Proper legal advice is always dependant on specific facts and circumstances. If you are seeking advice on specific matters, please contact Levi A. Taylor at levi@leviabramlaw.com or 1 (204) 292-8335.