Giacomodonato v. PearTree Securities Inc: Consideration in Employment Contracts

**Written by Zura Nakiwoga, Articling Student at Lee Workplace Law

Consideration is an important aspect of employment agreements. In the employment context, "consideration" refers to something of value exchanged between the employer and employee to support a new contract or contractual change. When hiring a new employee, often times the consideration is the offer of employment itself. However, if an employer wishes to make changes to an existing employee's contract, the employer must provide fresh consideration. This could be in the form of a signing bonus, pay raise, additional vacation time, or other benefits that were not previously provided under the original terms.

In a recent decision from the Ontario Court of Appeal, Giacomodonato v. PearTree Securities Inc., 2024 ONCA 437, we gain helpful further guidance on the issue of consideration for employment contracts.

Facts of the Case:

David Giacomodonato ("DG"), a successful investment banker with expertise in the mining sector, was recruited by PearTree Securities Inc. ("PearTree") in early 2016 to serve as President and co-head of banking. In April 2016, DG and PearTree entered into a binding employment contract. This first contract was favourable to DG, particularly in terms of termination provisions and compensation.

However, in July 2016, DG and PearTree negotiated and agreed to a second employment contract. This second contract included additional benefits such as two weeks of paid vacation and a $40,000 payment to DG to cover costs associated with leaving his previous employer. Despite these benefits, the second contract included less favourable termination clauses compared to the first contract, such as reducing DG's entitlement upon termination.

In January 2018, PearTree terminated DG's employment without cause. DG wanted the first contract to be binding because it provided better protection and benefits upon termination. On the other hand, PearTree wanted the second contract to be binding as it imposed more restrictive terms on DG and was more advantageous to PearTree in the event of termination.

DG sued PearTree for wrongful dismissal, arguing that damages should be calculated based on the first contract's terms. He contended that he had not received sufficient fresh consideration for the second contract to be enforceable. PearTree disputed this, arguing he had received fair consideration, and the second contract was binding.

Trial Decision:

The trial judge found that the second contract was binding, awarding DG compensatory and punitive damages totaling $671,765 and partial indemnity costs of $830,761.75.

Despite the favourable outcome, DG appealed, seeking a higher damages award based on the first contract. PearTree cross-appealed, seeking to vary the costs award against it.

Key Issues on Appeal:

The key issues on appeal were as follows:

1. Validity of the Second Contract: Was the second contract supported by fresh consideration, making it enforceable?
2. Costs Award: Was the trial judge's award of substantial partial indemnity costs to DG justified?

The Court of Appeal's Decision:

On the issue of consideration, the Court of Appeal took account of the following factors:

1. Existence of Fresh Consideration:

• Employers cannot change employment contract terms unilaterally without providing fresh consideration to the employee.
• In this case, the fresh consideration included a $40,000 payment to cover DG's costs of leaving his previous employer and an additional two weeks of paid vacation. These were substantial benefits validating the second contract.

2. Fresh Consideration Recognized:

• The trial judge determined that the $40,000 payment was part of the negotiations for the second contract, despite a mistaken belief that the payment was made in 2016 instead of 2017. The court of appeal found this error did not undermine the overall reasoning that the payment was integral to the agreement on the new terms.
• Importantly, the court of appeal also noted that the extra vacation time alone would have been sufficient as fresh consideration, highlighting that even relatively small benefits, such as additional vacation, can suffice to support a new contract.

3. Rejection of Comparative Analysis Requirement:

• The court of appeal rejected DG's argument that a comparative analysis of the overall advantages and disadvantages between the two contracts was necessary to determine fresh consideration. The court maintained that the existence of consideration was sufficient.

4. Acknowledgement of Power Imbalance:

• While recognizing the general power imbalance in employment relationships, the court of appeal found that DG's extensive experience in contract negotiation and his access to legal counsel mitigated this imbalance in the specific context of this case.
• This mitigation is relevant to the consideration analysis because it shows that DG was not in a vulnerable position typical of many employees, thus validating the adequacy of the fresh consideration provided.

With respect to costs, the court of appeal affirmed the trial judge's decision on costs, noting PearTree's conduct during litigation justified the substantial partial indemnity costs awarded to DG. PearTree had unnecessarily increased litigation costs and acted aggressively, warranting the higher costs award.

Outcome:

The Court of Appeal upheld the trial judge's decision, affirming that the second contract was binding and that DG was entitled to the previously awarded damages and costs.

Key Takeaways:

1. Importance of Consideration: Employers cannot unilaterally change employment contract terms without providing something new and beneficial to the employee. While consideration should be fair, employers have flexibility to offer extra pay or other perks, such as more vacation
2. Negotiation and Legal Counsel: Employees should seek legal advice when negotiating contracts, especially with significant changes, to ensure fairness and adequate consideration.
3. Enforceability of Contracts: Courts will enforce employment contracts as long as there is valid consideration, and the provisions comply with the Employment Standards Act (ESA). Both employers and employees should be mindful of the terms they agree to.

Conclusion:

The case highlights essential principles of consideration in employment law. It underscores the need for employers to provide fresh consideration when amending contracts and the importance for employees to review and negotiate contract terms carefully. This decision reinforces the legal protections for employees and the responsibilities of employers in maintaining fair employment practices.