Canadian Employment Law Today
Jun 11, 2019

Move up the ranks frees worker from original termination notice limit

Promotions, increased responsibilities and pay make termination provision from time of hire no longer fair or enforceable: Court
By Jeffrey R. Smith

The termination provision limiting a Saskatchewan worker’s notice entitlement that was signed when the worker first joined the employer is no longer enforceable after 11 years and multiple promotions, the Saskatchewan Court of Queen’s Bench has ruled.

Grant McKercher, 51, was hired by Stantec Architecture (SAL) in April 2006 as a staff architect. McKercher’s employment contract stipulated his salary would be paid by SAL’s affiliate company, Stantec Consulting (SCL) — which provided administrative and office management services to SAL —and included a termination provision stating that he would receive, upon without-cause termination, the greater of: two weeks’ notice or pay plus one additional week for each completed year of service after two years — to a maximum of three months’ pay or notice — or the “minimum notice of termination (or pay in lieu of notice) required by applicable statutes.”

McKercher’s job duties involved project design and project administration. Over the next several years, he received multiple promotions and, by 2017, his job title was business sector leader in Saskatoon, reporting directly to a SAL vice-president and with a salary more than double that of when he first joined SAL as a staff architect. His responsibilities at this point included business strategy, managing the client base, business development, networking, and staff supervision, hiring, and firing.

 

Employer stuck to original termination provision

On Nov. 21, 2017, SAL terminated McKercher’s employment. The termination letter — on SAL letterhead but signed by SCL’s vice-president — referred to the 2006 employment agreement and its termination provision, offering McKercher 11 weeks’ pay in lieu of notice.

McKercher claimed wrongful dismissal, arguing that his original employment agreement no longer applied, as the “nature, circumstances and responsibility” of his employment had changed significantly —eroding the “substratum” or foundation of the 2006 employment agreement — so the three-month notice limit placed on him when he was a staff architect wasn’t reasonable. He also said his employer who signed the employment agreement wasn’t the same employer who terminated his employment, as his position had evolved into one with SCL.

SAL countered that McKercher’s eventual promotion was contemplated when he was originally hired and the termination clause was intended to apply to him as he was promoted. It also said McKercher was aware of the relationship between SAL and SCL when he signed the employment agreement.

The court first addressed the issue of who McKercher’s employer actually was by the time his employment was terminated. It noted there were several entities bearing the name “Stantec” and both SAL and SCL were involved in McKercher’s employment. However, while there may have been some confusion, there was no indication at any point during McKercher’s tenure that his employer changed from the one who hired him. He was paid through SCL from the beginning but remained an employee of SAL, which ultimately didn’t matter because “an enforceable contract of employment would follow the employee in any transfer or assignment of the employment arrangement,” the court said.

As for McKercher’s claim that the substratum of his employment had changed and rendered the employment agreement unenforceable, the court referred to previous court decisions such as the 2012 Ontario case of MacGregor v. National Home Services, where it was established that the “substratum doctrine provides that if an employee enters into an employment contract that specifies the notice period for a dismissal, the contractual notice period is not enforceable if over the course of employment, the important terms of the agreement concerning the employee’s responsibilities and status has significantly changed.”

 

Fairness of contract can change as responsibilities increase: Court

This line of reasoning recognizes that terms in employment contracts that may be fair when an employee joins a company — as McKercher did when hired as a staff architect in 2006 — could become unfair as the employee’s tenure increases and she gains skills, higher pay, or more responsibilities —such as McKercher’s role by 2017. This can erode the foundation of the employment contract so that a limit on reasonable notice of termination established in the beginning are no longer appropriate, said the court.

“The idea behind the substratum doctrine is that with promotions and greater attendant responsibilities, the substratum of the original employment contract has changed, and the notice provisions in the original employment contract should be nullified,” said the Ontario Superior Court of Justice in MacGregor.

The Saskatchewan Court of Queen’s Bench found that McKercher’s responsibilities and the nature of his employment significantly changed during his 11-year tenure with SAL. There was no indication at the time of his hire or in the wording of his employment contract that SAL contemplated the extent of his promotions, as the company claimed in its defence to McKercher’s complaint.

The court also found that each time McKercher was promoted, SAL didn’t make it clear to him that the termination provision from his original employment agreement would apply to his new position. There was no specific wording that referred to the company’s intent in this matter and management didn’t raise the issue with him at each promotion, said the court.

Ultimately, the court determined that SAL didn’t protect the notice limit set out in the employment agreement McKercher signed when he was first hired by the company. The changes and advancement in McKercher’s job duties during his career with SAL overtook the original notice provision, making it unenforceable. As a result, McKercher was entitled to common law notice of termination, which the court determined to be 12 months based on his age, position, difficulty of finding similar employment, and years of service.

SAL was ordered to pay McKercher 12 months’ salary, benefits, and bonus in lieu of notice. Less the 11 weeks’ pay the company had already provided, the total damages for wrongful dismissal owing to McKercher was $143,467.

 

For more information see:

McKercher v. Stantec Architecture Ltd., 2019 SKQB 100 (Sask. Q.B.).

• MacGregor v. National Home Services, 2012 ONSC 2042 (Ont. S.C.J.).

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