Oral Contracts: Choose Your Words Wisely

Rejdak v. The Fight Network Inc. – Ontario Superior Court of Justice – July 29, 2008

An oral contract which precedes a written agreement will govern the employment relationship if there is no fresh consideration given in the written agreement and the employee acted on the oral contract to the point of not being able to refuse the written agreement.

The July 29, 2008 decision by the Ontario Superior Court of Justice in Rejdak v. The Fight Network Inc. [2008] O.J. No. 2995 (“Rejdak”) indicates that an oral employment contract will be found to govern the employment relationship instead of a written agreement that is signed later if there is no fresh consideration given to the employee in the second agreement and if the employee acted on the original agreement to the point of not being able to refuse the terms of the written agreement.

In Rejdak, the employee interviewed with the employer for an employment position. Two days after the interview, the employer contacted the employee over the phone. The employee claimed that during this phone call, the employer offered the employee the position and the employee accepted it. The employer stated that they asked the employee to come to the office to discuss an employment contract.

The following business day, the employee went to his then place of employment and resigned. He then met with the new employer and was given an employment agreement to take home and review. The employee took the employment agreement home, signed it and returned it the next day.

A month and a half later, the employer hosted a party and the employee attended. For two days after the party, the employee was absent from work without any communication with his employer. As a result of the absence, the employer dismissed the employee without notice, claiming that the employee was not entitled to notice since he was still within his three month probationary period, as stated in the signed agreement. The employee commenced a claim of wrongful dismissal.

In rendering a decision, the Trial Judge considered whether or not there was an oral contract formed during the phone call between the employee and employer and if so, was this oral contract varied by the employment agreement that the employee signed. In regards to the oral contract, the Trial Judge stated, “I conclude that on August 5, 2005, [the employer] offered and [the employee] accepted a job on the following terms: his title was editor and creative director; his annual salary was $50,000; and he was to start on Monday, August 8, 2005. There was no indication on August 5 that his employment was subject to a probationary period…I conclude that there was an oral employment contract entered into by the parties on Friday evening, August 5.”

Furthermore, the Trial Judge found that the written agreement did not vary the oral contract that was established. What was claimed by the employer to be fresh consideration, thereby making the written contract enforceable, was found by the Trial Judge to be insufficient consideration. The Trial Judge stated, “I do not accept that either benefit constitutes additional consideration. The paid vacation merely reflects the two-week statutory minimum. [The employee] would reasonably have expected to receive the health benefit plan since it was a standard benefit provided to all…employees.” Additionally, the Trial Judge found that the oral contract was not varied by the written agreement because the employee acted on it to the point of not being able to refuse the terms of the written agreement given to him on his first day of employment. The Trial Judge stated, “[The employee] relied on the oral agreement that he had entered into with [the employer] when he resigned from his job at The Score. Having given up his job and begun work [with the employer], he had no realistic choice but to sign the agreement. His option was to –take it or leave it’: he could sign the agreement or forego his job…and be unemployed.” Therefore, the Trial Judge decided that the oral contract governed the employment relationship and since there was no mention of a probationary period in this contract, the employee was entitled to notice.

The decision in Rejdak highlights the importance of communication between employers and potential employees. Employers need to be careful how they verbally express an offer to a potential employee so that they do not create a governing oral contract with the employee instead of a desired written agreement. Similarly, employees need to be attentive when communicating with their potential employers so that they do not misinterpret what the employer is offering in regards to possible employment. Although the Court decided in favour of the employee in Rejdak, the facts will be different in each case and a Court may find the employer’s version more credible, thereby finding the written contract binding on the employee.

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