What Employers Need To Know About Changes To Employment Duties

Have your employees’ duties significantly changed since they were hired? Did you review or ratify their employment contracts to acknowledge material changes or to indicate the continued applicability of terms? Over the course of employment, an employee’s role may evolve. This is to be expected in an environment as fluid as the workplace. However, just because it is expected does not mean it can be ignored from a legal standpoint.

Employers are often caught unaware that substantial changes in an employee’s duties or role can result in the invalidation of the termination clause in the employee’s employment agreement. The basis for this invalidation is that when an employee’s duties or role have significantly changed, the “substratum” (meaning the foundation) of the employment agreement no longer exists or has substantially eroded. In such circumstances, courts often take the view that enforcing a restrictive termination clause meant for a different employment relationship would be unfair. This doctrine is known as the “changed substratum doctrine”.

The Changed Substratum Doctrine

The validity of the substratum doctrine was recently reaffirmed in Celestini v. Shoplogix Inc. The Ontario Court of Appeal confirmed that if an employee enters into an employment contract that specifies the notice period for a dismissal, the contractual notice period is not enforceable if, over the course of employment, the important terms of the agreement concerning the employee’s responsibilities and status have significantly changed unless the employment agreement ousts the application of the substratum doctrine by stating that the termination clause applies despite changes to the employment relationship such as duties, position, salary, or benefits.[i]

But why is a termination clause needed in the first place?

The Hidden Danger Lurking in Unenforceable Termination Clause

If an employment agreement lacks a termination clause or the termination clause is unenforceable, the common law can and usually will supplement the minimum termination requirements of the Employment Standards Act. In the absence of an enforceable termination clause that limits termination entitlements, a dismissed employee could be entitled to a substantial amount of termination notice or damages for the employer’s failure to provide reasonable notice of termination. Such damages will typically include all compensation and benefits that the terminated employee would have earned during the notice period. Depending on the circumstances, the termination notice required at common law could be up to 24 months!

Common law without cause termination entitlements are typically much greater than what is owed by an employer under the Employment Standards Act (which maxes out at eight weeks of notice or pay in lieu of notice after eight years of consecutive employment) and much greater than that which is usually provided in employment contracts. For example, in the Celestini case, Shoplogix was ordered to pay Mr. Celestini 18 months of pay as damages instead of 12 months of base salary, which was the amount agreed to in Mr. Celestini’s employment contract.

This decision of the court might be worrying for employers, but the good news is that simple steps can be taken to reduce the likelihood of such an outcome.

Tips

The following are tips for reducing the risk of a termination clause being found unenforceable due to a substantial change in an employee’s duties or role.

• Ensure your employment contracts confirm continued enforceability of the termination clause in the face of material change:

The employment contract should expressly provide that its provisions, including its termination provisions, continue notwithstanding any changes to the employee’s position, responsibilities, salary, or benefits. In a British Columbia case, the court held that because the employment contract expressly provided that it will continue to apply even if the employee’s role changes, the changed substratum doctrine didn’t apply.[ii]

• Use a new contract or ratify the old one:

When the employee’s duties or responsibilities have drastically changed, place the employee on a new employment contract that includes all added responsibilities. Alternatively, the parties could ratify the continued applicability of the first written employment contract. For the new employment agreement to be enforceable, the employee will need to voluntarily enter it and receive something of value for doing so (for example, a signing bonus).

Conclusion

In conclusion, employers should ensure that their employment agreements confirm continued enforceability in the face of changes to the employee’s duties or role. Failure to do so could result in an unenforceable termination clause, leaving employers vulnerable to substantial damages if they dismiss the employee without cause. By taking proactive steps to address changes in an employee’s responsibilities, employers can reduce their risk of liability in the event of a without cause dismissal.

If you have any questions or would like any additional information regarding the above, please feel free to contact us at 1-800-604-1312, or via e-mail at [email protected], or by visiting our Vancouver office.

Disclaimer

***The above blog post is provided for informational purposes only and has not been tailored to your specific circumstances. This blog post does not constitute legal advice or other professional advice and may not be relied upon as such.***

Links

[i] Celestini v Shoplogix Inc, [2023] OJ No 909, 2023 ONCA 131

[ii] Miller v. Convergys CMG Canada Limited Partnership, 2013 BCSC 1589