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You need to update Bob’s employment contract. Maybe your lawyer told you the old termination clause won’t hold up. Maybe you’ve added new policies. Maybe you just want everyone on the same terms.
So you print out a new contract, hand it to Bob, and ask him to sign it.
Bob signs. You file it. Done.
Fast-forward two years: you let Bob go. You rely on the termination clause in the “new” contract.
Bob’s lawyer sends you a letter: That contract? Invalid. No consideration. Bob’s entitled to common law notice.
That signature you thought protected you just cost you 14 months of severance.
Consideration is something of value exchanged between parties to make a contract legally binding.
For new employees, consideration is built in — they get the job, you get their work. For existing employees, continued employment is NOT consideration.
Courts have ruled this repeatedly in cases like Hobbs v. TDI Canada Ltd. and Techform Products Ltd. v. Wolda. “Not being fired” has zero legal value. The employee was already entitled to their job under the existing contract.
What this means: If you hand Bob a new contract and say “sign this,” and he does, that contract is worthless.
The gap? Most small business owners don’t realize this. They update contracts, get signatures, and assume they’re protected. They’re not.
Fresh consideration means something new and of benefit to the employee.
Examples that work: salary increase (even a modest one), signing bonus (typically $500 to $5,000 depending on role), promotion or new title with expanded responsibilities, additional vacation days, enhanced benefits (better health plan, RRSP matching, stock options), flexible work arrangements (if not already offered), professional development budget.
Examples that don’t work: continued employment, a title change with no salary increase or expanded duties, something the employee was already entitled to (like an annual Christmas bonus they’ve always received), a promise of “job security” with no concrete terms, benefits that haven’t been delivered yet.
In Giacomodonato v. PearTree Securities, the court ruled that increased vacation entitlement alone was sufficient fresh consideration, even though other parts of the new contract made the employee worse off.
Key takeaway from case law: Courts care about the existence of consideration, not its adequacy. You don’t need to give Bob a huge raise. You DO need to give him something tangible and new.
Option 1: Offer Fresh Consideration (Safest)
Provide something of value in exchange for signing the new contract. Document it clearly in a cover letter: “In exchange for signing this updated employment agreement, you will receive [signing bonus/raise/additional vacation/etc.]”
Give the employee time to review (minimum 72 hours, ideally a week). Do NOT threaten termination if they refuse to sign — that’s duress and makes the contract unenforceable. Pay the consideration AFTER the contract is signed, not before.
Option 2: Give Notice of Termination and Offer Re-Hiring (Nuclear Option)
Provide the employee with working notice of termination (several months, whatever their reasonable notice entitlement would be). At the end of the notice period, the old contract ends. Offer to re-hire them under a new contract.
Why this works: The re-hiring itself is fresh consideration.
Why most employers won’t do this: It’s abrasive, damages relationships, and risks the employee leaving during the notice period.
In Theberge-Lindsay v. 3395022 Canada Inc., an employee resigned, then rescinded her resignation. The employer offered re-hiring under a new contract. The court ruled the re-hiring was valid consideration.
Option 3: Do Nothing and Hope for the Best (Riskiest)
Leave the old contract in place. Hope it holds up when you need it.
Spoiler: It probably won’t.
Mistake #1: Presenting the New Contract as “Sign This or You’re Fired”
This is duress. Courts will not enforce contracts signed under threat of termination. In Hobbs v. TDI Canada Ltd., an employee was told to sign a new contract or face termination. The court ruled the contract was unenforceable.
Mistake #2: Implementing Changes Before Getting Signatures
You can’t unilaterally change terms and then ask for retroactive agreement. If you reduce Bob’s salary and THEN ask him to sign a contract reflecting the reduction, that’s constructive dismissal. The change must be conditional on Bob’s agreement.
Mistake #3: Not Giving Employees Enough Time to Review
Handing someone a contract at 4:45 PM on Friday and expecting it signed by Monday morning? Unenforceable.
Best practice: Minimum 72 hours, ideally a full week. Encourage employees to seek independent legal advice (and document that you did).
Mistake #4: Waiting Too Long to Object to Changes
This applies to employees, but employers need to understand it too. If an employee continues working under new terms without objecting, courts may find they accepted the change. “Reasonable period” to object is usually short — weeks, not months.
But employees can work “under protest” — explicitly stating they don’t accept the change but will continue working to mitigate damages.
Unilateral change means changing employment terms without the employee’s consent. This triggers constructive dismissal claims.
Examples of unilateral changes that have led to successful claims: salary reduction (even 10%), demotion or loss of supervisory responsibilities, geographic relocation, significant change in job duties, change from salary to commission-based pay, change from employee to independent contractor, unpaid suspension (unless explicitly allowed in contract), forcing remote employees back to office (if they’ve worked remotely for an extended period and the contract doesn’t reserve that right).
The test from Farber v. Royal Trust: Would a reasonable person in the employee’s position feel that the essential terms of employment were being substantially changed?
What happens when you make a unilateral change: The employee can resign and claim constructive dismissal. The employee can refuse the change and continue under existing terms. If you proceed with the change anyway, you’ve terminated them. Now you owe severance — potentially common law notice.
Employers often try to justify unilateral changes by citing financial hardship.
Courts don’t care.
Ontario courts have repeatedly held that financial difficulty does not justify fundamental changes to employment terms without consent.
Your options during tough times: Obtain employee consent (with fresh consideration). Offer temporary measures with clear timelines and end dates. Implement reductions across the organization transparently (and still risk constructive dismissal claims). Provide working notice of the change.
What it is: Give the employee reasonable notice that their employment under the current terms will end, then offer re-employment under new terms.
How it works: Notify Bob in writing that his employment will terminate in X months. X must be long enough to satisfy his reasonable notice entitlement (could be 3 to 12+ months depending on Bardal factors). During the notice period, he continues working under existing terms and gets paid. At the end of the notice period, offer him a new job under new terms. He can accept the new terms or leave (with no additional severance owed).
Why this works: You’re not changing the contract unilaterally — you’re ending it with proper notice and offering a new one.
Why most employers won’t do this: It’s expensive (you’re paying full salary during the notice period) and the employee might leave before the period ends.
You have three options: Accept the refusal and continue with the old contract. Negotiate (offer more consideration, adjust the terms). Provide working notice and offer re-employment under new terms.
What you CANNOT do: Fire him for refusing to sign (that’s wrongful dismissal). Implement the changes anyway (that’s constructive dismissal). Reduce his pay or change his duties to punish him (also constructive dismissal).
In Wronko v. Western Inventory Services, the court confirmed that if an employee refuses to accept a fundamental change, the employer must either accept the refusal, provide notice of termination, or negotiate.
Step 1: Identify what needs updating — Termination clauses that no longer comply with current case law, missing clauses (IP, confidentiality, anti-obsolescence), outdated compensation structures.
Step 2: Determine what fresh consideration you’ll provide — Signing bonus, raise, additional vacation, enhanced benefits. Document the value clearly.
Step 3: Draft a cover letter explaining the changes — “We are updating employment contracts to ensure compliance with current employment law. In exchange for signing this updated agreement, you will receive [specific consideration]. You are encouraged to seek independent legal advice before signing. Please review the attached contract and return it signed by [date at least 7 days away].”
Step 4: Present the contract with adequate time to review — Minimum 72 hours, ideally a full week. Schedule a meeting to discuss if the employee has questions.
Step 5: Do NOT threaten termination — Make it clear this is voluntary. If they refuse, you’ll deal with that separately.
Step 6: Pay the consideration AFTER the contract is signed — If you pay before, it’s not tied to the contract. If you pay to everyone regardless of signing, it’s not consideration for the contract.
Step 7: Keep signed contracts on file — You’ll need them when you terminate someone years from now.
RascalHR’s employment contracts are updated as case law evolves. When you update contracts for existing employees, we guide you through the consideration requirement. We help you identify what fresh consideration makes sense for your budget and the change you’re making.
Our platform generates compliant contracts with all the protective clauses: termination, IP, confidentiality, anti-obsolescence.
The takeaway: Updating contracts isn’t just handing someone a new piece of paper to sign. It’s a legal transaction that requires fresh value.