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What’s In A Signing Bonus Anyway?

By November 27, 2018November 27th, 2020Employment Law

You have long term staff and want to change their contracts or put them on new contracts altogether.  We get it. It’s what we do here at DMC LLP.

You have a feeling they will say no – but So What If They Say No! DMC LLP manages all the aspects of the smooth transition to written contracts (check out our testimonials if you don’t believe me).

We often are asked why employees should be offered a signing bonus in order to sign a contract.

The answer is simple: the law says a signing bonus must be offered to the employee to change a contract quickly.

Signing Bonus = quickly signed contract for existing employee

In order to change an employee’s contract quickly, consideration (like a signing bonus, a raise, a promotion) must be given to the employee. This is based a long-standing tenet in employment law that says employees are more vulnerable (and employers hold more power) in the employment relationship; and thus some of that power must be transferred to the employee. By giving the employee something extra, something that is not already in the contract, that power imbalance is remedied.

But there are important potholes to avoid on this road! Continuing to hire someone will not be viewed by the courts as ample or reasonable consideration. In other words, a promise to perform an existing contract is not consideration. Thus, an offer of additional consideration is needed to be given to an employee to support the swift change of an existing contract (especially when dealing with the most important terms of the contract like compensation or schedule). Don’t let anyone tell you otherwise; take a look at all of these cases from Ontario’s highest court (the Ontario Court of Appeal) that support this position:

In the Hobbs v. TDI Canada Ltd., Justice Juriansz of the Ontario Court of Appeal, explained at para. 32 the reason why a court will normally not consider continued employment to be consideration:

“… the law does not permit employers to present employees with changed terms of employment, threaten to fire them if they do not agree to them, and then rely on the continued employment relations as the consideration for the new terms.”

The court also went on to say this, at paragraph 42:

“The requirement of consideration to support an amended agreement is especially important in the employment context where, generally, there is inequality in bargaining power between employees and employers. Some employees may enjoy a measure of bargaining power when negotiating the terms of prospective employment, but once they have been hired and are dependent on the remuneration of the new job, they become more vulnerable. The law recognizes this vulnerability…”

If you don’t believe that this can cause headaches down the road in the context of a purchase and sale of a business, check out our blog post about that exact issue (for a non-dentist) in Ontario.

What If I Don’t Want To Give A Signing Bonus

What can ALSO be used as consideration? That’s simple: reasonable notice.

If you give reasonable notice of the change to a new contract, an employer can make any change they want.

But that definition of “reasonable notice” is something that is fiercely debated among lawyers.  You can find tons of “severance calculators” that some entrepreneurial employment lawyers post on their website to market their services and what they can do for potential employee-clients.  The courts have said over and over again that determining reasonable notice in the context of employment is more of an art, not a science (from the often-cited case called Bardal v Globe and Mail Ltd., [1960] OJ No. 149 (Ont HC).

So, if a dentist wants to force an employee to sign a new contract or insert new terms into an existing employment relationship, then it must give consideration like a signing bonus or a raise or a promotion, or an employer must give an employee reasonable notice of the change of terms.

What If They Say “No”?

So what if the employee says no? Well luckily we don’t have to stray too far in to understand what happens here.

In the significant legal decision of Wronko v. Western Inventory Service Ltd., 2008 ONCA 327 (also discussed previously on our blog), the Ontario Court of Appeal specified that an employee has 3 options when faced with an employer’s proposal to unilaterally amend the fundamental terms of an employment agreement:

  1. the employee may accept the change in the terms of employment, either expressly (with a signature) or implicitly through apparent acquiescence, in which case the employment will continue under the altered terms;
  2. the employee may reject the change and sue for constructive dismissal if the employer persists in treating the relationship as subject to the varied term; or
  3. the employee may make it clear to the employer that he or she is rejecting the new term and insisting on the original terms of employment.

Luckily, when contracts are rolled out properly (using DMC LLP), an employer can avoid negative repercussions from any of the above 3 options:

  1. Employment continues – not a problem
  2. Employee wants to sue for wrongful dismissal? Well since they keep their job during the time that they consider all of the changes to the written contract (or could have kept their job if they choose to leave), their potential claim has no damages against the employer.
  3. Employee rejects new terms in writing? We have seen this happen. It’s not a problem — no one can force anyone to work anywhere in the Province of Ontario.  And no one is forced to hire anyone in the Province of Ontario. But, if the employee chooses to keep coming into work and keep getting paid after receiving notice of the changes to their employment, they will be deemed to accept the contract through constructive acceptance of the terms (being offered a signing bonus to sign a contract AND getting reasonable notice of the changes AND continuing to work after that reasonable notice)

Is this is all true? Well the Ontario Court of Appeal approved of that idea in the case called Belton v. Liberty Insurance Co. of Canada, [2004] 189 OAC 173 (ONCA).  There, the court said:

“if the employees acknowledge an employer’s changes and continue to work, they will be taken to have condoned the changes and will no longer be able to claim constructive dismissal if they are dissatisfied with the new terms and conditions of employment.

We also know that the above is all true because the Ontario Superior Court in 2010 said it was true.  In the case of Russo v. Kerr Bros. Ltd, 2010 ONSC 6053 (CanLII)an employee was faced with a significant reduction in his compensation.  So in response, he commenced a lawsuit for constructive dismissal against his employer; but while he was suing his employer, he continued to work under the new terms to mitigate his losses.  Justice Gray clarified how the employer was allowed and permitted to do so:

“the [employee] can remain in the workplace under the changed terms as a means of mitigating his damages, but only for the period of reasonable notice. If he elects to remain in the workplace under the changed terms beyond the period of reasonable notice, with the consent of the defendant, it must then be concluded that he has accepted a new contract of employment under the changed terms after the expiry of the period of reasonable notice.”

So there you have it – a signing bonus or reasonable notice is the key.

Final Option – The Nuclear Option

At the end of it all, the employer still has the option to stop hiring the employee if they do not choose to accept the terms of the contract. This option was endorsed by the Ontario Divisional Court in a case called Kafka v. Allstate Insurance Company of Canada, 2012 ONSC 1035, where the court said the employer can provide the employee with clear notice (equivalent to or greater than the employee’s notice of termination entitlement) that (i) the change will be implemented, and (ii) the employee will not be permitted to continue in their employment under the existing terms at the end of the notice period.

But after you have hired someone and built a professional relationship over many many years, do you really want to end on a low note like that? Probably not.

Conclusion

Dentists are in the business of creating smiles, not taking them away. Having smiles across your team member’s faces is a sure sign that you’ll see them on your patients’ faces.  Implementing contracts the right way (being sensitive to the needs of the practice and the needs of the dentist) is one of many considerations we take into account when managing HR for dentists.

Contact DMC if you have any questions about employment contracts!

DMC