A recent Supreme Court of British Columbia decision has reinforced the importance of fresh consideration when modifying employment contracts. In Sui v. HungryPanda Tech Ltd., the court ruled that a termination clause in an employment agreement was unenforceable because the employee did not receive any new benefits in exchange for agreeing to it.
The case involved X.S., who served as the general manager of Canadian operations for HungryPanda Tech — an Asian food delivery platform — from May 3, 2021, to Oct. 25, 2022. After about 18 months of employment, X.S. was terminated without cause. The central issue was whether the termination clause in the employment agreement, signed after initial terms were agreed upon via email, was legally binding.
In April 2021, HungryPanda and X.S. exchanged emails in Mandarin discussing potential employment. On April 23, HungryPanda offered X.S. the position of “general manager of Canada,” outlining terms such as a fixed salary of $9,600 per month, a variable salary of $2,400 per month, a six-day workweek, a three-month probationary period, and $20,000 in stock options. The offer stated, “After your confirmation we will provide you with an official employment agreement for your signature.”
X.S. inquired about increasing the equity component, and on April 24, HungryPanda revised the offer to include an additional $30,000 in equity upon successful completion of the probationary period. X.S. accepted this revised offer the same day.
On April 25, HungryPanda sent an employment agreement to X.S., which both parties signed. The Employment Agreement included a termination clause stating:
“The Employee’s employment may be terminated at any time by the Employer by providing to the Employee his/her termination and severance entitlements as prescribed by applicable employment standards legislation, that being at the present time, the Act respecting labour standards (‘ESA’), together with any other statutorily prescribed entitlements and benefits…”
Upon termination, X.S. argued that the termination clause was unenforceable because it was added without fresh consideration to an existing contract formed through the email exchange. Additionally, X.S. contended that the clause referenced the “Act respecting labour standards,” which is Quebec legislation, potentially allowing HungryPanda to provide less notice than required under the British Columbia Employment Standards Act (BC ESA).
HungryPanda maintained that the initial emails did not constitute a binding contract but were merely preliminary negotiations, emphasizing that the offer was contingent upon signing the official Employment Agreement. The company also argued that fresh consideration was provided in the form of group health benefits, an expense account, and paid time off.
The court analyzed whether a contract was formed through the email exchange. It concluded that “on an objective view… a reasonable person would conclude that a contract was formed through the offer and acceptance emails.” The reference to providing an official employment agreement was deemed an additional formality rather than a condition for contract formation.
Regarding fresh consideration, the court found that the employer failed to provide any material advantage to X.S. in exchange for signing the Employment Agreement. “It is not enough to say there were benefits available to the plaintiff, or even that he received benefits, because the entitlement to benefits must be linked to the Employment Agreement,” the court said. The expense account and paid time off were obligations already required under the BC ESA, and there was no admissible evidence that health benefits were contingent upon signing the new agreement.
Consequently, the termination clause was unenforceable due to the lack of fresh consideration. While acknowledging ambiguity in the clause’s reference to the “ESA,” the court noted that elsewhere in the Employment Agreement, the BC ESA was specifically mentioned, resolving the ambiguity in favour of applying the provincial statute.
In determining damages, the court applied the factors from Bardal v. The Globe & Mail Ltd., considering X.S.’s age (40 years old), length of service (approximately 18 months), position (senior management), and the availability of similar employment. The court recognized X.S. as part of senior management, noting his responsibility for overseeing all Canadian operations and managing regional and city managers.
The court also considered the non-competition clause in the Employment Agreement, which HungryPanda had emphasized upon termination. Justice B. stated that such a clause is “a proper factor to consider when assessing the appropriate period of notice.”
Justice B. concluded that a reasonable notice period was six months. The damages were calculated as follows:
- Six months’ salary at $12,000 per month: $72,000
- Less 14 days of working notice: -$5,523.29
- Less earnings during the notice period: -$1,950
- Total damages awarded: $64,526.71
This ruling underscores the necessity for employers to provide fresh consideration when modifying employment contracts, especially when introducing terms that are detrimental to the employee. Employers should ensure any new agreements offer a tangible benefit to the employee to be enforceable.
Additionally, clarity in drafting termination clauses is crucial. Ambiguities or references to incorrect legislation can render such clauses unenforceable, potentially exposing employers to greater liabilities under common law reasonable notice obligations.
Unless further matters are raised, the court awarded costs to X.S. at Scale B.
For more information, see Sui v HungryPanda Tech Ltd., 2024 BCSC 1856 (CanLII).
