Canada: Superior Court Confirms that Employers can Fundamentally Change Employment Contracts with Reasonable Notice

In Lancia v. Park Dentistry, the Ontario Superior Court confirmed that employers can change the fundamental terms of an employee's employment, without providing consideration, so long as they take appropriate steps to provide reasonable notice of the change coupled with notice that employment under current terms would terminate at the end of that notice period.

The Facts

The employee had worked for Park Dentistry and its predecessor for approximately 19 years. Dr. Park eventually decided to transition his staff to written employment contracts which, among other things, would reduce their vacation pay, which was well above the Employment Standards Act minimum, and institute termination clauses limiting their entitlement upon termination.

Dr. Park presented the employee with a new employment contract (the "New Contract") in August 2014, with a cover letter indicating that the present oral contract (the "Old Contract") would be coming to an end. The employee had two choices: she was provided with 18 months of working notice, based on relevant factors such as her age, the nature of her employment, and her length of service, after which her employment with Park Dentistry would end. Alternatively, she could sign the New Contract and receive a $2000 signing bonus, at which time her Old Contract would come to an end immediately upon signing, and the terms of the New Contract would come into force.

Despite being given until January 2016 to consider and review the offer with a lawyer, the employee signed after just two days, and did not attempt to negotiate any of the terms of the New Contract.

The employee worked under the New Contract until February 2016, and then resigned. She subsequently brought an action for constructive dismissal, alleging among other things, that the New Contract was invalid for lack of consideration, that her vacation pay had been improperly reduced or clawed back, and that she had been subject to sexual harassment and a poisoned work environment.

The Decision

The Superior Court of Justice decided in favour of the employer that the New Contract was valid, and that the employee had not been constructively dismissed.

The employee argued that she had not been provided with valid consideration for signing the New Contract because although she received a $2000 signing bonus, the New Contract reduced her vacation pay significantly such that she earned several thousand dollars less than she had under the Old Contract. This effectively meant she was out several thousand dollars, even after receiving the signing bonus.

The Court rejected this argument, noting that its role was not to second guess the consideration provided. The employee could have rejected the signing bonus and worked out her notice period under the Old Contract. Rather, she freely chose to accept the $2000 bonus as consideration, and to become subject to the terms of the New Contract.

The Court further found that in any event, no consideration would have been required to make the New Contract enforceable. The employee was terminated with sufficient notice of eighteen months, which she could have chosen to take as working notice, and she was offered re-employment on new terms with no substantial change in job description or tasks.

The employee also argued that she had not been provided with reasonable notice that her Old Contract was coming to an end. Rather, the terms of the New Contract came into force immediately when she signed it, and thus she did not receive 18 months of working notice.

The Court rejected this argument because the employer had offered the employee 18 months of working notice, during which the terms of the Old Contract would have applied. The employee made the choice to sign the New Contract after two days, receive the signing bonus, and become subject to its terms immediately.

The Court ultimately ruled that the employer had been improperly making deductions to the employee's wages in order to claw back vacation pay she had been paid under the terms of the Old Contract during the previous year, and that it had to pay the employee back. However, this did not amount to a constructive dismissal.

The Court considered the fact that the employee had not alleged constructive dismissal until over a year after she resigned, and had never communicated to the employer that she considered the repayment of her vacation pay as a breach of the contract. Further, the employee failed to prove she was ever subject to sexual harassment or a poisoned work environment. Rather, the Court noted that her resignation letter indicated that she was resigning for financial reasons, including that she had not received a raise in some time.

The Takeaway

This case provides employers with welcome confirmation that that they can change the fundamental terms of an employee's employment, without providing consideration, so long as they provide reasonable notice of the change/termination of the present terms. While this is good news, the Court noted that the employer in this case had received extensive advice from an employment lawyer on how to do so properly. Attempting to change the essential terms of an employee's employment is fraught with legal pitfalls, and it is advisable to seek advice from an employment lawyer before attempting to do so.

In the instant case it was made clear to the employee that if she did not accept the New Contract, its terms would not be forced on her after the 18-month period of working notice. Rather, she was explicitly told that her employment with the employer would simply terminate when the working notice period was finished if she did not accept. If she did accept, she was explicitly advised that her employment with the employer would come to an end, and that she would commence new employment under the terms of the New Contract. The employee accepted immediately.

These important facts distinguish this case from the Ontario Court of Appeal's 2008 decision in Wronko v. Western Inventory Service Ltd. ( Read our case comment on Wronko, originally published in 2008 by The Lawyers Weekly).

In Wronko, the employer advised the employee that, after a two-year period, his contract would change such that his entitlements upon termination would be substantially reduced from the 24 months guaranteed in his contract. Unlike the instant case, the employee in Wronko told his employer right away that he would not accept this change to his employment agreement. Even more importantly, the employer in Wronko then waited until the end of the two-year period to tell the employee he either had to accept the contractual changes, or be terminated – rather than provide notice of the pending change and termination simultaneously.

The Court of Appeal ruled in Wronko – that 24 months' notice of the change was not the same as 24 months' notice of termination. As a result, Mr. Wronko was not given notice of termination until he was presented with the ultimatum and the revised contract was unilaterally imposed. He was still entitled to the original, 24 months' pay in lieu of notice in his original contract.

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