Employer’s Failure to Provide Consideration for Termination Provision Fatal to Defence of Wrongful Dismissal Case

by Dentons
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[author: Christina Hall]

Investments Hardware Ltd. engaged in verbal negotiations with Anthony Fasullo with respect to a sales position that Fasullo applied for with the Company. The parties discussed salary, commissions and benefits for the sales position and reached an agreement on those terms in May 2007. The parties shook hands on the oral agreement and Fasullo was scheduled to start work with the Company on June 18, 2007.

After Fasullo started work, on June 20, 2007, the Company presented him with a written employment agreement to sign. The written employment agreement largely reflected the substance of the parties’ oral agreement, but for one key aspect; the written agreement stated that if Fasullo’s employment was terminated without cause, his entitlements would be restricted to his minimum entitlements under the Employment Standards Act, 2000. According to Fasullo, the issue of his entitlements on termination of employment had not been discussed back in May 2007 such that, in his view, this restriction was a “new” term of his employment. The Company maintained that it had verbally explained Fasullo’s limited entitlements on termination without cause back in May 2007. Notwithstanding this discrepancy, Fasullo signed the June 20, 2007 written employment agreement and continued working. Fasullo’s terms and conditions of employment were amended in writing twice more during his employment with the Company – once in October 2007 and once in June 2008. The October 2007 amendment referred back to Fasullo’s “existing offer of employment of June 20, 2007″ and the June 2008 amendment referred back to Fasullo’s “original offer of employment”.

Fasullo’s employment with the Company was later terminated without cause on March 10, 2011 after approximately four years of employment with the Company. He was provided with his entitlements under the Employment Standards Act, 2000, in accordance with his written employment agreement, but nothing further. Fasullo sued the Company for wrongful dismissal and sought common law reasonable notice. Fasullo alleged that his employment was governed by the May 2007 oral employment agreement, not the June 20, 2007 written employment agreement, because he was not provided with any consideration for the termination provision in the written employment agreement.

After reviewing the evidence, Justice Sanderson found as a fact that the Company had not explained Fasullo’s entitlements on termination of employment in May 2007 when the oral employment agreement was reached, such that Fasullo was entitled to common law reasonable notice under this agreement. Justice Sanderson further found that the June 20, 2007 written employment agreement – which purported to unilaterally reduce Fasullo’s entitlements on termination without cause from common law reasonable notice to only his minimum statutory entitlements – was void for lack of consideration. In other words, the Company had not provided Fasullo with additional compensation, or some other new benefit, in exchange for Fasullo agreeing to reduced entitlements in the event his employment was terminated without cause. As such, Justice Sanderson concluded that the termination provision contained in the June 20, 2007 written employment agreement was unenforceable at law and Fasullo was entitled to common law reasonable notice. Further, Justice Sanderson found that neither the October 2007 nor the June 2008 amendments to Fasullo’s terms and conditions of employment cured the issue. Therefore, Justice Sanderson awarded Fasullo 3.9 months’ common law reasonable notice, less the amounts already provided to Fasullo by the Company.

This case serves as yet another cautionary reminder to employers to exercise care when orally negotiating employment agreements with prospective employees. A good practice is to tell the prospective employee that any verbal agreements reached are conditional upon the prospective employee signing a written employment agreement that includes termination provisions, and that the employee have the time to review, consider and execute the written employment agreement before commencing employment. This simple process can help employers avoid the unpalatable situation that occurred in this case.

Fasullo v. Investments Hardware Ltd., 2012 ONSC 2809 (CanLii): http://canlii.org/en/on/onsc/doc/2012/2012onsc2809/2012onsc2809.pdf

 

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