Are employment agreements valid if the position and salary change?

Question: We have an employee who has been with the company for 20 years. When she began her employment, she signed an employment contract which limited her notice upon termination to her entitlement under the applicable employment standards legislation. Originally the employee was hired as a receptionist at a salary of $17,000 a year. Over the years she has been promoted and is now an office manager earning $40,000 a year. We have been told that we may have a problem dismissing her and providing only her statutory entitlement to notice as per the terms of the employment agreement. Is this true? If the terms of the contract are clear, why wouldn’t it be enforceable?

Answer: It is true that it is possible the contract the employee entered into when she first began her employment may be unenforceable. There are a number of cases in which termination clauses have been successfully challenged by employees on the basis the contract is outdated and therefore has become obsolete.

It is argued that the contract could not possibly have been intended to apply to the more senior position held by the employee at the time of dismissal. Generally the cases in which this issue arises are those where the employee’s level of responsibility and status has increased significantly over the period of employment.

In this case the employee has clearly advanced in both position and responsibility since the original contract was signed. Thus, even if the terms of the agreement are clear, it is possible the termination provision may not be enforceable. This will depend on the specific terms of the agreement and whether or not there was any acknowledgement the contract would continue to govern the employment relationship regardless of changes in the employee’s position.

For example if the employment agreement specifically provides that the terms will continue to apply despite any fundamental changes in the employee’s duties, position or compensation, the contract may still be enforceable. Another way employers can try to protect themselves is to have the employee periodically acknowledge that the agreement continues to apply despite any changes in their position. Employers can also make any material changes to the employee’s employment (such as promotions or salary increases) conditional upon the execution of an amended employment agreement which agreement can contain a provision limiting notice to employment standards minimums.

Peter Israel is the head of Goodman and Carr LLP’s Human Resource Management Group. He can be reached at (416) 595-2323 or [email protected].

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