Court Decision Reminds Employers To Avoid 'Two-Step' Offers Of Employment
July 11, 2024 at 06:11 am EDT
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In Adams v. Thinkific Labs Inc., 2024 BCSC 1129, a British Columbia trial court applied the doctrine of consideration at the employment contract formation stage to void a termination clause and award the employee damages in lieu of common law reasonable notice of termination. The case serves as a good reminder on the basic principles of employment contract formation and the importance of following a sound procedure in making offers of employment.
Facts
The employee applied for a job with the employer in 2021. In August 2021, the employer sent the employee an email offering employment, which included details about compensation, benefits, and other employment-related information (the Initial Offer). Importantly, it does not appear from the decision that the Initial Offer was not made conditional on the employe entering into an employment contract or other documents.
The employee accepted the Initial Offer, providing her legal name and desired start date. Subsequently, the employer sent a written contract titled "Protection of Corporate Interests," which included a termination clause and restrictive terms such as non-competition that were not mentioned in the Initial Offer (the Letter Agreement). The employee signed this Letter Agreement and began working on September 20, 2021. She was terminated 20 months later.
Issues
The main issues were
whether the Initial Offer constituted a full and binding employment contract without a termination clause, entitling the employee to reasonable notice or pay in lieu of notice at common law
whether the Letter Agreement containing important employer protections was enforceable
Decision
Justice Caldwell ruled that the Initial Offer and acceptance constituted a complete employment agreement and that the subsequent Letter Agreement was unenforceable due to lack of consideration for the new, onerous terms it imposed. The Court determined that the employee was entitled to severance at common law and awarded her a notice period of five months of pay in lieu of notice.
Reasoning
The Court found that the Initial Offer was detailed and constituted a full offer of employment, which was accepted by the employee. The Letter Agreement imposed new terms without consultation or additional consideration. The Court relied on the 2005 decision in Krieser v. Active Chemicals Ltd., which established that new employment terms detrimental to an employee require adequate consideration, which was not provided in this case. The Court also noted that
the Letter Agreement had an entire agreement clause that referred to "prior agreements," suggesting that the Initial Offer was indeed a contract
the Letter Agreement failed to make reference to any of the employment benefits mentioned in the Initial Offer, which was used to induce the employee to accept the offer of employment.
Key takeaways for employers
This decision echoes the timeworn perils of providing offers of employment verbally or through email or other less formal means, and then later introducing new employment terms without "fresh" consideration. Employers cannot simply rely on continued employment as sufficient consideration for new terms that are introduced after an initial offer has been accepted.
When preparing offers for employment, it is important to include all terms of employment, particularly any business-specific and properly tailored restrictive covenants and an enforceable termination provision. Employers must also take note that even an email can be considered a "formal employment contract", if it contains the substantial terms of an offer for employment. As such, having a potential employee sign on to a comprehensive and consolidated employment contract form at the outset, can have the benefit of avoiding such mishaps.
In our practice, we strongly recommend that employers leverage up-to-date and practical-to-use template offer letters from the get-go so that the entire offer of employment, including all protective terms, are presented to the candidate at once. In essence, "one-step" complete offers are far preferable to "two-step" processes.
However, where the employer wants to proceed with a term sheet or initial summary of the offer — notwithstanding the elevated risks (as demonstrated by this case) - then such summary should, at the very least, be extremely clear that the compensation and benefits are conditional on the employee entering into an employment contract, containing full terms of employment, in a form satisfactory to the employer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr Steven Dickie
Osler, Hoskin & Harcourt LLP
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Thinkific Labs Inc. is a Canada-based company that offers a software platform that enables entrepreneurs to create, market, sell, and deliver their own online courses. The Company operates primarily in one segment, which being the development, marketing and support management of the Companyâs cloud-based platform. The Companyâs primary business activity is to provide a platform that helps entrepreneurs and established businesses (Creators) to scale and generate revenue by teaching what they know. The Companyâs platform provides its Creators with the functionality needed to launch, grow, and diversify their businesses by creating and selling learning products composed of customized courses, communities, membership sites, and other experiences that Creators can create, sell and deliver using its platform. Its features include creating courses, building websites to market clientâs business, generating income by selling, engaging with learning community, and grow and scale their business.
THINKIFIC LABS INC. 
