Changing contracts by providing notice
Ontario court confirms it – employers can make fundamental changes to an employment contract by providing notice
Apr 17, 2012
By Stuart Rudner
In the past, I have written about how employers can implement new employment agreements for existing employees.
Generally speaking, I describe two possibilities: negotiate a new agreement by providing consideration to the employee, or provide the employee with appropriate notice of the change.
With respect to the latter option of providing notice, this approach effectively terminates the existing employment and establishes a new one. In order to terminate the existing agreement, notice of termination must be provided. The amount of notice would be the same as the notice to be provided in the event of dismissal without cause. Needless to say, that can be quite lengthy in certain circumstances.
In recent years, there has been some debate regarding whether employers are still entitled to make changes by providing notice, or whether the law was changed by the Ontario Court of Appeal’s 2008 decision in Wronko v. Western Inventory Service Ltd.
The recent decision of the Divisional Court of the Ontario Superior Court of Justice in Kafka v. AllState Insurance Company of Canada suggests the decision in Wronko was fact-specific and did not change the law.
In Kafka, the employer advised employees of changes to employment agreements by way of a form letter and a video presentation. The company provided more than two years’ notice of the changes. However, a group of employees attempted to bring a class action against the company.
A motion’s court judge dismissed the application for certification of the class action, and the matter was appealed to the Divisional Court.
The employees argued an employer cannot effect unilateral and fundamental changes to the employment contract by way of notice, regardless of how much notice is provided. The Divisional Court disagreed.
Among other things, the court relied on its view that in Wronko, “the employer issued an ultimatum following a period of time in which it had permitted an employee to continue employment after he had refused to accept the proposed terms.”
Furthermore, the court wrote “it was not made clear to Mr. Wronko that he would be terminated if he did not accept the change prior to September 2004. It makes sense, in the circumstances, that the two year period prior to September 2004 would not be considered as notice.”
In other words, in reaching its decision in Kafka, the Divisional Court interpreted the Court of Appeal’s decision in Wronko as being fact-specific and largely influenced by the fact the purported notice of termination of the existing agreement was not clear and unequivocal.
Since the Wronko decision was released, my view has been that it was not intended to significantly change the law, and employers still had the right to make fundamental changes to the terms of an employment contract by providing sufficient notice. While it remains to be seen if the Kafka decision will be appealed to a higher court, it is consistent with the view I have expressed in the past regarding the Wronko decision.
Stuart Rudner is a partner with Miller Thomson LLP in Ontario, specializing in employment law. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is author of You’re Fired: Just Cause for Dismissal in Canada, published by Carswell. He can be reached at (905) 415-6767 or firstname.lastname@example.org. You can also follow him on Twitter @CanadianHRLaw, join his Canadian Employment Law Group on LinkedIn, and connect with him on Google+.
Stuart Rudner is the founder of Rudner Law (RudnerLaw.ca
), a firm specializing in Employment Law and Mediation. He can be reached at email@example.com
, (416) 864-8500 or (905) 209-6999, and you can follow on Twitter @RudnerLaw.