the recent recessionary period sparked by the global credit crisis saw increased efforts by some employers to unilaterally and nega-tively change the terms of employment contracts. Several years

ago, the Ontario Court of Appeal adopted some clear rules for employers to follow and subsequent court cases suggest that employers who ignore those guidelines do so at their own peril.

The Wronko caseWronko was an employee of Western Inventory Service Ltd. and entered into a “comprehensive and sophisticated employment agreement,” which included a provision that he would receive two years’ salary as severance if his employment was terminated. Almost two years later, Western sent Wronko a new employment contract reducing the severance to 30 weeks. Wronko refused to sign the new contract and, in response, Western informed Wronko that the reduced severance provision would come into effect in two years’ time. Wronko consistently objected to the proposed new termination provision over the next two years. When Western indicated to Wronko that if he did not accept the new provision, Western did not have a job for him, Wronko sued for wrongful dismissal.

The court’s guidelines The Court of Appeal backed Wronko and agreed that the two-year sever-ance provision in the original contract should stand. The following general principles were emphasized: • Where an employer purports to make a unilateral and fundamental

change in the terms of employment, the employee can accept the change directly, or by implication through acquiescence (i.e., staying employed without protest). In such circumstances, employment continues under the altered terms.

• The employee may reject the unilateral change and sue for damages if the employer insists in treating the relationship as being subject to the varied term.

• The employee may make it clear to the employer that he or she rejects the new employment term. If the employer does nothing in response, then the original contract terms will apply. The employer has the option in those circumstances of providing the employee with notice of termination of employment (and paying the severance) and thereafter offering re-employment on the new terms.

What has happened since Wronko In a subsequent Ontario case, an employer dissolved its pension plan and asked all employees to accept a 10 per cent reduction in compen-sation. The compensation of the plaintiff employee (Russo) was even further reduced. Russo clearly indicated that he did not consent to the changes and that he considered himself to be constructively dismissed. Russo continued to work for the employer at the reduced pay to mitigate his damages.

Again, the court agreed with the employee. However, it cautioned that if the employee remained under the changed circumstances beyond the notice period (the period of reasonable notice that the employer should

have provided for him for dismissal), it would be concluded that the em-ployee had accepted a new contract under the changed terms after the expiry of the notice period.

In yet another recent Ontario case, the employer satellite radio company was experiencing financial difficulty and made drastic

Can an employer unilaterally change the terms of an employment contract?

The recent recessionary period sparked by the global credit crisis saw increased efforts by some employers to unilaterally and negatively change the terms of employment contracts.

By Gina Ross, Burnet, Duckworth & Palmer LLP

A D v e r T i S e r S ’ i n D e Xlegal lessons

59 OILSANDS REVIEW | aPril 2011

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compensation cuts across the board. Davies (who had a written employ-ment contract) had his work reduced from full-time to part-time, and his salary was further reduced by $100,000. When it became clear that the satellite company was not going to live up to certain promises made

in respect of the changed terms, Davies asserted that he had been constructively dismissed. The court agreed and found that Davies was entitled to the severance payment and compensation provided for in his earlier employment contract.

Considerations for employees • Although these cases emphasize that the employer cannot elimin-

ate the risk of constructive dismissal or wrongful dismissal simply by providing reasonable notice of the fundamental change to a written contract, there are some earlier Alberta decisions that suggest that an employer may be able to do so. Wronko has not been considered by an Alberta court, and as such those differing judicial views are not yet reconciled.

• Although Wronko involved a comprehensive written agreement, it did not contain a provision that would simply have allowed the employer to terminate by providing reasonable notice. If the employer does in fact terminate and pays the employee for a reasonable notice period or con-tractually provided for severance, the employer is likely then in a pos-ition to turn around and offer re-employment on the amended terms.

• An employee will have anywhere from a few weeks to a few months to note objection to a unilateral change. Otherwise he or she may be found to have agreed to the changes.

Considerations for employers• If an employer wishes to make a unilateral change to an employ-

ment agreement, it would be wise to review the contract to ensure that it permits such a change. Often such agreements have a clause stating that the contract can only be amended in writing and by the agreement of both parties.

• If the written employment agreement provides for a severance payment upon termination and a clause that the severance is not reduced by income earned after the termination, or the sever-ance amount is a lump sum payment, it is unlikely that providing notice of the employment change would reduce the stated severance amount.

• If the wording of a written employment contract allows for uni-lateral amendment, or where there is no written employment contract, reasonable working notice should be given of any unilateral change.

• Where an employee objects to the changed term or terms, the employer has the option of terminating employment and the existing employment contract, and then offering the employee employment on the changed terms. The employee’s obligation to mitigate his or her damages may obligate the employee to accept employment on the changed terms.

SummaryEmployment contracts add certainty to the employment relationship and state the terms upon which employment ends. The cases referenced above are a reminder that effecting negative and unilateral changes to a written employment contract will not be easy. Where there is not a writ-ten contract, reasonable notice should be provided by an employer of any negative unilateral change, and where an employee objects in a timely fashion, it is unlikely that the terms of the unwritten employment contract can be changed.

Gina Ross is a partner at Burnet, Duckworth & Palmer LLP who practises primarily in the employment law area.

When an employee objects in a timely fashion, it is unlikely that the terms of the unwritten employment contract can be changed.

SR

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