You are here

Giving notice of changes to employment terms

Employers frequently wish to impose changes on employees during the course of their employment. There has been something of a debate in the courts about how the employer must go about making those changes for them to be lawful and binding on the employee.
Imposing new terms of employment in an improper manner can amount to what is known as "constructive dismissal". A constructive dismissal is a termination of employment by conduct rather than by words. The employer doesn't expressly state that the employee has been terminated but its actions amount, in the eyes of the law, to a rejection of the terms of the employment contract.
Fundamental changes to the employment such as unilateral salary reductions, demotions, and indefinite (unpaid) layoffs are examples of significant changes that, if made improperly, create the risk of a claim of constructive dismissal. A constructively dismissed employee is entitled to monetary damages (often referred to as "pay in lieu of notice" because the common law entitlement is the provision of reasonable working notice of termination).
When the courts get involved in determining whether certain terms of employment are binding on the employee, the concept of consideration has traditionally been the all-important factor. That is because one of the key rules about employment contracts is that there must be consideration flowing to the employee in exchange for accepting the employer's terms.
At the outset of the employment, the employer's offer of employment serves as consideration for the individual's acceptance of the terms of employment. During the course of the employment, some new or enhanced entitlement must be offered to the employee to satisfy the consideration requirement.
The legal debate has been whether simply providing reasonable advance notice of the change will also suffice. In Ontario, there is new case law to suggest that giving working notice of a fundamental change to the terms of employment is a lawful alternative to the provision of consideration.
Wronko was the Vice President of national accounts and marketing for Western Inventory Service Ltd., a large corporation providing physical inventory calculations to retain businesses. Prior to the cessation of Wronko's employment, he had been employed by Western Inventory for 16 years.
Wronko's terms of employment had included a substantial severance entitlement of two years' salary plus bonus. After a change in presidents, the employer sought to reduce Wronko's severance entitlement to three weeks notice per year of service to a maximum of thirty weeks in total. 
That alteration to the severance entitlement would have cost Wronko over $200,000. Wronko objected to the alteration and, in response, Western provided him with two years of working notice of the imposition of the new severance formula. In practice, that meant that upon the expiry of the two years of notice, the new severance formula would be in effect.
Wronko continued to work for the two year period. Upon its expiry, Wronko took the position that his employment had been terminated and he demanded the two years' severance pay to which he believed he was entitled. The dispute over Wronko's entitlements ended up in court.
The Ontario Superior Court of Justice determined that the key question was whether Western Inventory had the right to vary the termination clause in the contract upon providing Wronko with reasonable notice. The Court accepted that the law on this point is that an employer may make a unilateral and fundamental change to a term or condition of employment upon providing reasonable notice of that change. As a result, Wronko's claim for damages was dismissed.
What constitutes reasonable notice is, of course, always debatable and the assessment of what is reasonable is more art than science. The generally accepted ceiling on reasonable notice is, however, 24 months and Western Inventory took the safe route by providing Wronko that amount.
Whether this most recent pronouncement by the courts will settle the debate over the proper method for altering employment contracts remains to be seen. In the meantime, employers would be well-advised to seek advice before imposing fundamental changes.