Reconsidering Consideration In The Employment Law Context

The recent decision of the British Columbia Court of Appeal in Rosas v. Toca, 2018 BCCA 191 has changed the law of contract variation. This decision will be important for employment lawyers to consider when varying employment agreements or enforcing amended agreements.

The law was settled that consideration — the payment or benefit exchanged for a contractual action or promise — is a fundamental requirement to establish that a contract is enforceable. If you want the right to sue on a promise made, you have to purchase the right.

In the employment context, consideration has always been required to support changes made to an employment contract during employment. An employer cannot enforce a change to an employment contract, such as the introduction of a limitation on termination pay or a non-solicitation covenant, unless it has given the employee something new of value in exchange. A variation to an existing employment contract that is not supported by fresh consideration is voidable and non-binding.

In the reasons for judgment in Rosas v. Toca, Chief Justice Baumann writing for the court canvassed the evolution of the law of consideration and noted that at times, the absence of consideration has been used by litigants as grounds to sidestep their contractual obligations. In the past, the legal requirement for consideration has been so rigidly applied that it has created room for injustice. Until now. The court held that the application and formality of an artificial rule like consideration can no longer be used as a tool to allow parties to avoid their legal contractual obligations. The court wrote:

"When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable...[A] lack of fresh consideration will no longer be determinative."

As a result of the decision in Rosas v. Toca, consideration may not be required in cases where the parties voluntarily agree to vary the terms of a contract during employment, subject to finding illegitimate pressure. Judges now have the ability to arrive at results which reflect the true intentions of the contracting parties - even in the absence of the legal formality of consideration.

How the reasoning in the case of Rosas...