How Contract Pitfalls Undermine Enforceability of Employment Concessions

HR directors don’t generally go to law school. So, I sometimes think it’s unfair to expect them to navigate the legal intricacies so many HR operations entail. Employment contracting is a perfect example.

Scenario: In the wake of COVID-19, you need to restructure an employee’s compensation package by shifting base salary to contingent bonus payments. To avoid the risk of constructive dismissal, you incorporate the new terms into a revised employment contract which includes boilerplate language from the original agreement indicating that the employee’s obligations are “in consideration of employment.”

Question: What did you do wrong?

Answer: Your contract provides no real consideration.

Explanation: Contracts Law, 101. Promises aren’t legally binding unless the promisor receives “consideration,” or something of value in return for making them. Providing employment is valid consideration when contracting with a new employee. But that’s not the case with current employees since you’ve already provided them with employment. Result: Concessions contained in revised contracts must provide the existing employee some kind of new consideration.

Of course, it’s not just constructive dismissal. From protecting intellectual property to limiting termination notice, hidden contract law pitfalls can undermine just about any initiative HR directors undertake. If you want an excellent overview of these contractual issues from a seasoned HR lawyer, Lisa Goodfellow, come to our 90-minute webinar on September 29.