Implications of Promotion May Invalidate Employment Contract
Employees frequently enter into employment contracts that limit their notice entitlements upon a without cause termination. However, significant changes in employment can render an employment contract unenforceable by the time an employee is dismissed: Miller v. Convergys CMG Canada Limited Partnership, 2013 BCSC 1589 at para. 22, aff’d 2014 BCCA 311. This doctrine is called the changed substratum doctrine and has implications on the notice an employee is owed upon a without cause termination.
Robins J.A. described the doctrine and its rationale in Wallace v. Toronto-Dominion Bank (1983), 41 O.R. (2d) 161 (C.A.), at pp. 180-81:
[T]here are readily imaginable cases where an employee's level of responsibility and corresponding status has escalated so significantly during his period of employment that it can be concluded that the substratum of an employment contract entered into at the time of his original hiring has disappeared or it can be implied that the contract could not have been intended to apply to the position in the company ultimately occupied by him.
The changed substratum doctrine recognizes the potential inappropriateness and unfairness of applying the employment contract's termination provisions to circumstances that were not contemplated at the time the employment arrangement commenced: Celestini v. Shoplogix Inc., 2023 ONCA 131 at para. 32. Hence, where this doctrine is applicable, the employee's entitlements upon a without cause termination would then be pursuant to the common law, which often provides for greater notice than amounts stipulated in employment contracts.
The common law implies a term into an employment relationship of indefinite duration that the employee will receive reasonable notice before being terminated without cause. Reasonable notice is generally determined by taking into consideration factors such as the character of the employment, length of service, the age of the employee, the availability of similar employment, and the experience, training and qualifications of the employee: Machtinger v HOJ Industries., [1992] 1 S.C.R. 986, at pp. 998-99.
Therefore, despite the existence of an employment contract, employers may have increased liability where the doctrine is applicable.
However, employers are not without protection. The written employment contract may nullify the changed substratum doctrine if it expressly provides that its provisions, including its termination provisions, continue to apply even if the employee's position, responsibilities, salary or benefits changes: Miller at paras. 35-36.
Further, the termination provision may have continuing force despite substantial changes in the employee's duties if the parties ratified its continued applicability when those changes occurred: Schmidt v. AMEC Earth & Environment et al., 2004, BCSC 1012, at paras. 32-33.
If you are an employer or employee and believe this topic to be relevant to you, please consider contacting our firm for a consultation. This blog post is not to be considered as legal advice.