Doctrine of Consideration on Employer’s Side – Court Will Not Enforce Employment Contract Unfavourable to Employer

Written by on October 8, 2018 in Employment Law Blog, Focus on Canadian Cases
Signing a contract agreement


It is unusual for an employment contract to be drafted by an employee and provided to an employer to sign. Typically, an employer will draft an employment contract to include terms favourable to the employer. What happens when an employee is permitted to draft an employment agreement that is favourable to the employee and to the detriment of the employer?

Earlier this year, the Ontario Superior Court heard the unique case of a terminated employee who had drafted his own employment agreement on highly favourable terms. In Waddilove v. 1748960 Ontario Limited, the court held that changes to an employment contract which benefitted an employee were void because the employer did not receive consideration at the time the contract was entered into.

Tyler Waddilove was hired as the General Manager of the Muncey-Delaware Nation Paradise Bingo, a casino located on the Muncey-Delaware First Nations reserve in Ontario. The casino is a charitable corporation controlled by a Board of directors, all of whom are members of the Muncey-Delaware First Nation.

After working as General Manager for some time, Waddilove told the Board of Directors – which included his father, a friend of his father’s and a former employee of his father’s — that all casino employees should have employment contracts.

The Board agreed, and allowed Waddilove to draft employment agreements for himself and the other staff.

There were significant differences, however, between Waddilove’s contract and everyone else’s. While the other employees were given fixed-term contracts ranging from one to five years, with a termination provision that limited notice entitlement for without-cause dismissal to statutory minimums Waddilove’s own contract was for a seven-year fixed term, and stipulated that if he was dismissed without cause, he would be owed compensation for the balance of the contract.

The Board of Directors signed off on Waddilove’s contract.

The following year, a new Board of Directors came in. They were not made aware of Waddilove’s contract, and remained unaware of its terms until two years later, when they tried to terminate his employment.

Waddilove argued that pursuant to the terms of his employment agreement, he was entitled to payment of his salary for the balance of the contract, which was not set to expire for another four years. The corporation refused to pay, claiming that, among other things, “the contract is unenforceable as being unconscionable and void as a result of the existence of a conflict of interest between the parties at the time the contract was entered into”.

The Court held that the employment contract was void for lack of consideration. It affirmed the general principle of contract law that new or additional consideration –something of value exchanged between the parties — is required to support a variation of an existing agreement. The Court found that Waddilove provided no fresh consideration to support the seven-year employment guarantee in the contract.

The Court further found that Waddilove breached his fiduciary duty to the casino, and that the Board members who signed the employment agreement breached their respective fiduciary and statutory obligations. In the Court’s view, the contract was not properly authorized and approved by the Board and band council.

Despite this finding, the Court found that the casino did not have just cause to terminate Waddilove based on the information it had when it dismissed him. The casino failed to warn Waddilove that his behaviour, including absenteeism, was unacceptable, and failed to employ progressive discipline. The Court concluded that Waddilove was entitled to four-and-a-half months’ pay in lieu of notice.

Lessons for Employers and Employees

We generally see the courts using the doctrine of consideration to deny employers the ability to enforce restrictive termination clauses imposed after employees have already commenced working. This unusual set of facts, however, demonstrates that under certain circumstances, the courts will apply the doctrine of consideration to an employer’s advantage.

Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or an employee, we can help. Contact us to see how.

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