My Employer Just Gave Me a New Employment Contract – Do I Have to I Sign It Right Away?

It isn’t uncommon for employment to change over time.  You may have received a promotion, or your employer has gone through a restructuring process, or even the nature of the overall business has undergone significant changes, and your role has changed to reflect that. For clarity, most employers will provide a new employment contract outlining any significant new role along with any changes in the employment relationship. A new contract may also be offer even if your role does not change.  If any of this happens, before you sign on the dotted line, it is important to pause, carefully review the document, and ensure you fully understand what you agree to. Here is why.

What if the Contract is Different From What Was Promised?

Whether the new employment contract was expected or not, you might notice discrepancies between what is written in your employment contract and what was verbally represented to you would be your new role or if there is no new role, what your current role entails. If this happens, do not sign immediately. Instead, respectfully but clearly communicate your concerns to the employer. Ask why the terms differ and request adjustments to reflect the initial promises made to you or what reflects your current role.

It is important to note that if your employer made promises in writing (such as via email or text), those communications might legally form part of your contract. A recent BC case, Sui v. HungryPanda Tech Ltd., confirms that email exchanges, under certain circumstances, can actually become legally binding terms of employment.

Did You Receive Consideration for Your Contract Renewal?

Your employer might ask you to sign a new employment contract, replacing your previous agreement. Legally, for a new contract or its terms to be enforceable, “fresh consideration” – something new of value, such as a promotion with a raise, or a bonus for signing this contract, even enhanced benefits, or additional vacation days – must be provided to you in exchange for agreeing to the updated terms. Without fresh consideration, the new contract is not binding on you.

In June 2024, the Court of Appeal confirmed in Giacomodonato v. PearTree Securities Inc. that fresh consideration was required for the new employment contract given to an existing employee. As such, you should ensure that you receive fresh consideration for a new contract, especially if the new contract contains terms that take away rights you have under the old contract.

Do You Fully Understand the Terms of Your Contract?

• a. Termination Clause

The termination clause defines what you will receive if your employment is terminated, and sometimes these termination clauses will limit your entitlement to the minimums allowed under employment standards legislation, such as the Employment Standards Act, 2000 (“ESA”) in Ontario.  Adding such a termination clause is often the reason that your employer might ask you to sign a new contract, even if there is no change to your role.  If enforceable, it will limit your termination entitlements to what it provides. Without a termination clause—or if the clause is unenforceable—you are entitled to common law reasonable notice, often significantly more generous than ESA minimums. Understanding this distinction is critical, as it can substantially impact your financial security if your employment is terminated unexpectedly.

• b. Compensation and Benefits

In addition to salary (wages), there might be contractual benefits such as group benefits, bonuses, stock options, RSUs, etc. Understand how these benefits are calculated and how often they are paid out.

According to Matthews v. Ocean Nutrition Canada Ltd., confirmed by the Supreme Court of Canada in 2020, if you are terminated without just cause, you are entitled to compensation equivalent to what you would have earned during the reasonable notice period, including your contractual benefits, unless there is language directly excluding that entitlement.

Therefore, pay particular attention to any “exclusion clauses” that might explicitly state that specific benefits or compensation elements, like bonuses or equity incentives, are excluded from your termination entitlements. This could significantly affect your severance package if your employment is terminated.

• c. Restrictive Covenants

Restrictive covenants generally include confidentiality agreements, non-competition clauses, and non-solicitation agreements.

• Confidentiality: Usually, confidentiality clauses are required to protect the employer’s sensitive information and prohibit disclosure, except with the employer’s permission or as required by law.
• Non-competition: Non-competition clauses limit your ability to work for competitors, typically within a defined time and geographic area. However, in Ontario, non-competition clauses entered into after October 25, 2021, are no longer enforceable under the ESA, with the two exceptions for executives and the sellers of businesses.
• Non-solicitation: Non-solicitation clauses prohibit you from soliciting the clients or employees of your former employer for your own benefit or the benefit of someone else.  To be enforceable, these clauses must have a reasonable definite duration.

Consult a lawyer to fully understand these provisions, ensuring you do not inadvertently agree to overly restrictive terms that might hinder your future career opportunities.

Final Thoughts

Receiving a new employment contract can provide clarity in your role at a company, but it can also create questions. Do not rush into signing without fully understanding its terms. If you are uncertain about any aspect, seeking legal advice can clarify your obligations and rights.