The Ontario Court of Appeal (the “ONCA”)’s decision in Giacomodonato v PearTree Securities Inc. [Giacomodonato] offers critical guidance for employers navigating the complexities of employment contracts. At the heart of the dispute were two employment agreements and the enforceability of a second contract that imposed less favourable entitlements for the employee upon termination of employment. The case underscores the legal requirements for modifying employment agreements, while serving as a cautionary tale for employers about the use of non-solicitation clauses and term sheets during recruitment.
Background
The employee, a seasoned investment banker, was recruited by the employer in early 2016. The recruitment process involved an initial term sheet sent to the employee in March 2016, outlining compensation, start date, and bonus structure. This was followed by a formal employment contract signed in April 2016, which provided generous termination entitlements.
In July 2016, the parties agreed to a second, revised contract. This second agreement offered the employee added benefits—such as two weeks of additional paid vacation and a $40,000 payment to cover costs incurred from leaving his prior employer—but contained a less favourable termination clause.
In January 2018, the employer terminated the employee’s employment without cause. The employee subsequently initiated a wrongful dismissal suit, arguing that the July agreement was unenforceable due to a lack of fresh consideration, and he should be entitled to the greater termination entitlements under the April agreement. The employer asserted that the second agreement was valid and enforceable, and that the April agreement was a term sheet and not a binding contract. The employer further argued the employee had breached the non-solicitation clause included in the July agreement.
Key Legal Issues
The case raised two central legal issues:
- Wasthe April agreement a binding agreement or just a term sheet?
- Was the July agreement supported by fresh consideration, making it enforceable despite its less favourable terms for the employee?
Procedural History
The Ontario Superior Court (the “ONSC”) ruled that the April agreement was a binding employment contract, rather than a non-binding term sheet. The absence of provisions on “every conceivable issue”—such as vacation or expense reimbursements— did not render it unenforceable. The ONSC noted that a reasonable person would interpret the wording of the April agreement to represent the employer’s intention to form a binding agreement with the employee based on the terms outlined in the document.
The ONSC also found that the employer repudiated the April agreement when it presented a revised offer in the July agreement. The employee chose to sign this offer and did not indicate that he was working under protest, which the court noted undermined his argument that he had not accepted to be bound by the revised terms.
The ONSC ruled that the July agreement was supported by fresh consideration—specifically, the $40,000 payment and additional vacation—meeting the legal requirement for modifying an existing agreement. As such, the July agreement was enforceable, and the employee was entitled to fewer entitlements upon termination than he would have had the right to under the April agreement.
Lastly, the ONSC found that the non-solicitation clause in the July agreement was unenforceable. The court characterized it as a disguised non-competition clause, unsupported by a legitimate proprietary interest, and overly vague in its scope of activity, geography, and duration.
The ONSC ordered the employer to pay damages pursuant to the employee’s termination entitlements as set out in the July employment agreement.
The Ontario Court of Appeal’s Decision
The ONCA upheld the ONSC’s ruling, finding that the July agreement was enforceable, based on the existence of fresh consideration. The ONCA emphasized that while consideration must exist for a contract to be valid, it need not be “adequate.” The ONCA stressed that courts do not compare the advantages and disadvantages of old versus new contracts when assessing consideration, but rather that there is a new benefit flowing to the employee in exchange for their agreement to new terms of employment.
While the ONCA ruled in favour of the employer in terms of the enforceability of the July agreement, the court did find that the employer unnecessarily increased the costs of the proceeding, by failing to comply with its discovery obligations in a timely way, and that its counterclaim, including its claim for punitive damages, was “obviously meritless”.
As a result, the ONCA upheld the trial judge’s award and dismissed the employer’s appeal with an order to pay $45,000 in costs to the employee.
The Giacomodonato decision provides critical guidance regarding amendments to employment agreements, the legal threshold for fresh consideration, and the enforceability of term sheets and restrictive covenants. Employers should review their practices around onboarding and contract renewal to ensure they are legally sound and clearly documented.
Takeaways
1. Fresh Consideration Is Essential When Modifying Employment Contracts
Employers cannot unilaterally impose new employment terms without providing something “new and of value” in return. Importantly, continued employment alone is not fresh consideration. While an employer must provide consideration for changes to an employee’s contract, courts do not evaluate whether the consideration is fair or equivalent—only that it existed.
2. Use Term Sheets With Caution
The court found that the April agreement was a binding employment, despite the employer referring to as a “term sheet”. Employers should ensure that any preliminary documents used during recruitment clearly state that it is non-binding, with language indicating it is a placeholder pending a final agreement.
3. Non-Solicitation Clauses Must Be Carefully Drafted
To be enforceable, non-solicitation clauses must be reasonable in scope (time, geography, and activity) and must protect an employer’s legitimate proprietary interest. Courts will strike down clauses that are vague or appear to simply limit competition rather than protect business interests.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.