Employers may believe they have a right to unilaterally change a fundamental term of an employee’s contract as long as they give reasonable notice of the change. However, the Ontario Court of Appeal has thrown a wrench into this thinking, ruling an employer wrongfully dismissed a manager when he refused to accept a change in his contract terms that he had been told about two years earlier.
Darrell Wronko was the vice-president of national accounts and marketing at Western Inventory Service Ltd., where he had worked for 17 years. Upon assuming the vice-president’s position in 2000, he signed an employment contract that provided for two years’ salary in the event of his termination. Two years later, in September 2002, a new company president sent a new contract to Wronko that reduced his entitlement upon termination to three weeks’ notice, or pay in lieu of, for each year of employment, to a maximum of 30 weeks.
Wronko refused to sign the new contract. In response, the president sent a memo giving Wronko notice that the termination provision would be changed in two years’ time. Wronko kept working, but continued to object to the new notice provisions. In September 2004, when the two years had elapsed, the president told Wronko the new employment contract was now in effect and if he refused to accept it, “we do not have a job for you.” Wronko did not accept it and sued for wrongful dismissal.
At trial, the Ontario Superior Court of Justice concluded Western was entitled to unilaterally amend the contract as long as reasonable notice of the change was given and, in this case, two years’ notice was enough. The claim for wrongful dismissal damages was dismissed.
On April 29, 2008, the Ontario Court of Appeal reversed that decision. According to the appeal court, once Western was aware of Wronko’s opposition to the new contract, the company had two choices. It could tell Wronko his refusal would result in his termination and re-employment would be offered on the new terms, at which point the termination provision in the December 2000 contract would be triggered, or accept Wronko’s employment would continue under the existing terms.
“Having failed to choose the former course, Western must be taken to have acquiesced to Wronko’s position and to have accepted that the terms of the existing contract remained in effect,” the Court of Appeal said. “Western’s decision to terminate Wronko in September 2004 thus carried with it the consequence that Wronko was entitled to two years’ termination pay pursuant to the terms of his existing employment contract.” In the end, Wronko was owed $67,795 — equal to two years’ salary of $286,000, minus the $218,205 he had earned in a new job during that time.
The lesson from this decision is employers must be very careful when making substantial changes to employment contracts, even if they are prepared to give a lot of notice of the changes. The employment law firm Filion Wakely put it this way in a recent “What’s New in HR Law” update: “Employers should try to provide reasonable notice to an employee before implementing what may amount to an amendment to a fundamental element of the employment contract. Further, where an employee objects to the change, the employer may also need to provide the employee with notice of termination effective at the expiry of the reasonable notice period together with an offer of re-employment based on the new terms and conditions of employment.”
For more information see:
Wronko v. Western Inventory Service Ltd.
(2008), 2008 CarswellOnt 2350 (Ont. C.A.).
Cindy Moser is the freelance editor of Carswell's Human Resources Management in Canada. She can be reached at (705) 745-1709 or email@example.com.
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