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Alice and Bob have a contract.

One day they mutually agree to modify it.

Does the modification need to have all the elements of a new contract? In particular, does it need to have a consideration on both sides?

Typical scenario is employee's annual pay rise. The employer raises the pay, the employee agrees. But what is his/her new consideration for the employer? Does the absence of one render the pay rise unenforceable?

(This question has been inspired by this one).

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    The consideration on the employee's side would be the continued good work for the company. I don't see how it would be implied that there were no consideration on both sides in that case... – Ron Beyer Mar 15 '19 at 2:32
  • @RonBeyer the continued good work is the consideration in the original contract, isn't it? A new contract (if a modification to the old one is a contract itself) requires a new consideration, IMHO. – Greendrake Mar 15 '19 at 3:40
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In general, yes

See What is a contract and what is required for them to be valid?

That said, contracts can contain terms allowing for the terms to be varied - either unilaterally or bilaterally. If so, then a variation that followed this term would be valid without having to meet the requirements. The scope of this term can be as broad (i.e. allowing modification of all terms) or narrow (e.g. only allowing modification of some terms).

Sometimes, such a term is so ubiquitous in some industries (e.g. building and construction contracts) that the courts will imply it into the contract as "common industry practice" if it is not explicit.

By and large, that is what is going on with employee pay rises - the ability of an employer to offer pay rises without consideration from the employee is so ubiquitous (in all industries) that it can be considered to be implicit in an employment contract. You are quite right that continuing to perform the obligations you already have under a contract is not sufficient (in the legal sense) consideration.

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what is his/her new consideration for the employer? Does the absence of one render the pay rise unenforceable?

No, the pay rise is enforceable, especially where employment is at-will because either party is entitled to terminate employment anytime so as to prompt a more convenient rehire anyway. Law is not ritualistic, whence termination is not a legal requirement for the new conditions to be enforceable. Thus, @RonBeyer is right, although in his comment I would place emphasis on the aspect of employee's "continued" work rather than the "good" quality thereof.

Even if the initial contract binds the parties for a pre-established duration or perpetuity, nothing prohibits the parties to mutually agree to modify that contract. For instance, see the Restatement (Second) of Contracts at § 89 (listing alternative conditions so that "[a] promise modifying a duty under a contract not fully performed on either side is binding").

Prohibiting a mutual agreement merely because one of the parties does not add a novel consideration would contravene the contract law principle of parties' knowingly and willfully binding themselves to updated terms. In the scenario you describe, there is still a consideration (namely, the employee's work), and the pay rise would not materialize if the [employee's] consideration ceased to exist. See also Restatement at § 311(2).

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  • The Restatement (Second) of Contracts is available here, now that the law firm of the link in this answer removed that resource and posted some useless "overview of contract law" instead. – Iñaki Viggers Jan 3 at 15:35
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If the new terms are secured under threats of non-performance of the terms of the old contract, then that would be grounds for invalidating them. So if you've signed a contract to work for a particular period of time, and then in the middle of the contract threaten to quit unless they pay you more, that could be found to be extortionary. But if the company voluntarily agrees to pay you more, then there's nothing wrong with that.

Generally, though, employees don't have a contractual obligation to continue working for the company. If you don't have a time commitment, or you're negotiating pay for a period past your current time commitment, then the consideration is your continued work. Each day you work is separate consideration. Just because you're already working today, that doesn't mean that working tomorrow isn't new consideration.

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