Changing Employment Contracts

Changing Employment Contracts

Any “fundamental change” to an employment contract requires careful consideration by the employer. A fundamental change results where the terms of employment are changed in any significant way. Examples of fundamental changes include, amongst others, a reduction of hours and salary, geographical relocation, or a significant change in the roles and responsibilities of the employee.

Where a fundamental change is instituted unilaterally by an employer, an employee may sue for damages based on constructive dismissal. Where the employer wishes to make a fundamental change to the employment relationship, the following considerations should be taken into account in order to avoid a claim for constructive dismissal:  

  1. The consent of the employee should always be secured in writing. This can be done by way of amending agreement to the employment contract. It is also often helpful to provide an understandable reason for the change to the employment relationship.
  2. To ensure that the contractual amendment is legally enforceable, there must be an exchange of valuable consideration. In order to create a valid and binding contract, the employee must be given some of value, such as a monetary signing bonus.

After an employee receives notice of a change to the employment relationship, such as a reduction of hours and salary, from its employer, the employee may make the following decisions (as laid out by the Ontario Court of Appeal in Wronko v Western Inventory Services Ltd. 2008 ON CA 327 (“Wronko”):

  1. The employee may accept the change;
  2. The employee may reject the change and sue for damages based on constructive dismissal if the employer proceeds with the change without the consent of the employee;
  3. The employee may reject the change and continue on according to the established terms of employment, unless terminated by the employer as discussed below.

Where an employee rejects the proposed fundamental change, the employer has the following options, as laid out in Wronko:

  1. The employer may terminate the employee by providing an adequate notice period or pay in lieu of notice, according to the termination provision in the employment contract, ensuring that termination notice period does not fall below the Employment Standards Act minimums, or below the common law reasonable notice period, if applicable. The employer may then re-offer employment to the employee on new terms.
  2. The employer may accept that there has been no agreement to the fundamental change and continue on existing terms.

Questions?

Dale & Lessmann LLP is a full service business law firm in Toronto, Ontario, Canada.

Phaydra Falkner is a Corporate and Employment Law Lawyer at Dale & Lessmann LLP who is fluent in English and German. To speak to Phaydra please call 416-369-3812 or send an email to her at pfalkner@dalelessmann.com