Copyright 2008, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Pension & Employee Benefits May 2008
In a recent decision, the Ontario Court of Appeal (the Court) found that an employer cannot unilaterally amend the terms of an employee's contract of employment. In Wronko v. Western Inventory Service Ltd., 2008 ONCA 327, the Court found that if an employee refuses to accept an employer's offer to amend the terms of his or her employment contract and the employer allows the employee to continue working, the terms of the original employment contract remain in force. By allowing the employee to continue working, the employer acquiesces to the employee's refusal to amend the employment contract. The case will have significant implications for employers who are considering the implementation of fundamental changes to employee benefit and compensation arrangements.
To change the terms of an employment contract when an employee refuses to accept the variation, an employer must terminate the employee with proper notice and then offer the employee re-employment on the varied terms.
Darrell Wronko's (Wronko) original employment contract with Western Inventory Service Ltd. (Western) contained a termination provision which provided for the payment of two years salary upon termination. In 2002, Western demanded that Wronko sign a new employment contract which would reduce his entitlement upon termination to a maximum of 30 weeks salary.
Wronko refused to sign the employment contract and was insistent that his original employment contract remained in force. In response, Western informed Wronko that it was giving him 104 weeks (or 2 years) notice of the amendment to the termination provision. In essence, Western said that after the expiry of the notice period, the amended termination provision would become a term of the employment contract without Wronko's consent. Wronko continued to work but did not agree to the amended termination provision.
In 2004, (four days after the expiry of the two-year notice period), Western sent Wronko an employment contract which contained the amended termination provision. Western informed Wronko that if he did not accept the new terms and conditions of employment (including the amended termination provision), Western would no longer have a job for him. Wronko refused to accept the new employment contract. The day after Western's ultimatum, Wronko explained that he understood his employment to be terminated and did not report for work.
Wronko pursued a wrongful dismissal claim against Western. The lower court found that Western was entitled to unilaterally amend Wronko's employment contract upon reasonable notice and that Wronko ended the employment relationship when he refused to report to work. The lower court dismissed most of Wronko's claims.
Reversing the lower court's decision, the Court of Appeal found that Wronko's original employment contract remained in force. The Court also found that Western's ultimatum that if Wronko did not accept the change to his employment contract, Western no longer had a job for him, amounted to a termination of the employment relationship. Accordingly, Wronko was entitled to two years salary continuance provided for under the original employment contract.
The Court of Appeal found that an employer is not legally entitled to give an employee an ultimatum to accept new contractual terms or quit. In Ontario, an employee has three options when presented with an employer's offer to amend the terms of his or her employment contract and each option has a specific effect on the employment contract. According to the Court, an employee may:
- expressly or implicitly accept the amended terms; in this
case, the amended terms apply;
- refuse to accept the amended terms and if the employer
insists that the amended terms apply, sue the employer for
constructive dismissal; in this case, the terms of the
original employment contract apply; or
- refuse to accept the amended terms and continue working;
if the employer allows the employee to continue working, the
terms of the original employment contract apply.
The Court was clear that an employer cannot unilaterally change the terms of an employee's contract. If the employee accepts the amended terms, then the amended employment contract is effective without any further effort on the employer's behalf. If the employee refuses to accept the amended terms, the employer has two options:
- allow the employee to continue working (and by doing so
accept the employee's refusal to amend the contract);
in this case, the terms of the original employment contract
- terminate the employee with proper notice and offer the
employee re-employment on the amended terms.
The major distinction between the Court of Appeal's decision and that of the lower court is the lower court found that if an employer gives an employee reasonable notice of a fundamental change to his or her contract of employment, the change becomes effective (without the employee's consent) upon the expiry of the notice period. The lower court allowed the employer to make a unilateral change to the employment contract upon reasonable notice. Previous jurisprudence has also expressed the view that employers can make unilateral changes upon reasonable notice.
The Court of Appeal's decision is significant to any
employer who wishes to amend the terms of employment including,
for example, amendments to employee benefit and compensation
arrangements. Old practices of giving reasonable notice of
amendments are no longer sufficient to amend employment
Western has until June 28, 2008, to seek leave to appeal this decision to the Supreme Court of Canada.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.