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The enforceability of termination provisions within contracts of employment

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Image: Jeroen van Oostrom | FreeDigitalPhotos.net

The employment relationship is a contractual one whether or not a contract of employment was signed. Contracts can be express or implied contracts, i.e., you agree to work and I agree to pay you. Verbal bargains are nearly always upheld as long as those implied contracts are governed by particular employment standards and obligations established by the common law. For example, whether or not there is a written employment agreement, an employment relationship in Ontario—termination, minimum wage, vacation, parental leave etc.—is always governed by the minimum standards as established in the Employment Standards Act. Express and implied contracts are also governed by the Workplace Safety and Insurance Act, the Occupational Health and Safety Act as well as the Ontario Human Rights Code.

However, due to the increased volume of litigation both in the courts and within the context of tribunals, most employment relationships are locked in by written offers of employment and employment agreements prior to the employee commencing work. Obviously, there are other benefits to the written employment agreement, such as providing for a descriptive probationary period, defining job descriptions, defining the expectation of the employee, setting out the employer’s internal policies with respect to different issues, setting out the restrictive covenants required by that employee should the employment relationship cease, clarifying compensation and, more importantly, specifying termination entitlements that are afforded to the employee in the event of termination.

One would be surprised at the amount of termination consultations I provide that deal with termination provisions within the context of the employment agreement. This is nearly always a problem for the employee.

The Supreme Court of Canada told us in the case of Machtinger v. HOJ Industries Ltd. that the common law presumption of termination upon reasonable notice can be rebutted where an employment contract contains a notice provision, so long as that notice provision does not violate minimum employment standards legislation. I refer to these contracts as “caged contracts” in that reasonable notice is rebutted and the contract of employment that the employee signed takes precedence. Remember, absent such termination provisions in an employment contract, an employer needs to provide notice of its objective and intent to terminate, while conforming to both statutory minimums and the common law. If the notice is spelled out, the employee may be out of luck.

Normally, the only way an employee could avoid the caged provisions is with the contract possibly being “outdated.”  The passage of time alone will normally not negate the employment contract termination provisions or make them unenforceable; there must also be a change in the nature of employment or a change in the position which causes the substratum of the contract to fall away and renders the contract unenforceable. This was set out in the case of Wallace v. Toronto Dominion Bank Court of Appeal case.

Over time, our courts have called this issue the “substratum doctrine,” which is law that is still alive and recently explored within the case of McGregor v. National Home Services. In this case, the defendant brought a motion for summary judgment arguing that there was no genuine issue for trial because it was able to enforce an employment agreement signed by the plaintiff which limited his compensation upon dismissal. The plaintiff, McGregor, relied on the substratum doctrine to resist the motion for summary judgment. The judge stated that

The changed substratum doctrine is a part of employment law. The doctrine provides that if an employee enters into an employment agreement 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 employees responsibility and status has significantly changed…the idea behind these changed substantial doctrine is that with promotions and greater attendant responsibilities, the substratum of the original employment contract has changed, and notice provisions in the original employment contract should be nullified.

The judge found that the plaintiff’s position, responsibilities and status, including taking over the role of vice-president of operations as well as being vice-president of contractor new home sales, changed his role with the company and, as a result, there was a genuine issue for trial.  The employer was not able to rely only on the fact that it had satisfied minimum notice in accordance with the original employment agreement.

Therefore, employers are advised to routinely review their employment contracts and bring them up to date or execute new employment contracts at the time of change of responsibility or compensation.

For employees, if responsibilities, compensation and positions change without re-contractual arrangement, perhaps it may be better in some circumstances to not say anything at all.

Matt Lalande practises catastrophic injury law and employment law. You may reach him through his website at www.hamiltonpersonalinjurylawyers.com.

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Matt Lalande

Personal Injury Lawyer at Micheal L. Lamont Personal Injury Law
Matt Lalande is a lawyer at Micheal L. Lamont Personal Injury Law. Although Matt is specialized in representing those who have suffered harm by the wrongs of others. Matt has particular emphasis on wrongful death, personal injury and employment law. Matt has represented employers and employees within all facets of employment law and human rights law.Read more
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