THE EMPLOYERS' EDGE
The Value of “Refreshing” Employment Contracts Throughout the Employment Relationship
Most employers are well aware of the importance and value of employment contracts, particularly for the purpose of limiting the obligation to provide reasonable notice of termination. However, many employers are not aware that contracts are not necessarily permanent and promotions to higher levels of responsibility and status can render previously agreed upon termination provisions inapplicable. The issue was recently addressed in a summary judgment motion in MacGregor v. National Home Services (2012 ONSC 2042).
Doug MacGregor (“MacGregor”) was hired by National Home Services (“National”) in 2008 pursuant to a written contract of employment that limited his entitlement to notice of termination. In 2009 and 2011, he was promoted to Vice President roles, with expanded responsibilities. Sometime after February 2011, National terminated Mr. MacGregor’s employment and relied upon the 2008 contract to limit his notice of termination entitlement. In response to Mr. MacGregor’s subsequent wrongful dismissal lawsuit, National argued that there was no genuine issue for trial because the parties’ employment agreement was valid and limited its obligation to provide reasonable notice of termination. National brought a motion for summary judgment in pursuit of this argument.
In response to National’s motion, MacGregor argued that there was a genuine issue for trial to determine whether or not it would be unfair to continue to apply the original contract of employment given his promotions and expansion of responsibility since the employment agreement was entered into by the parties. From MacGregor’s perspective, the original bargain was simply no longer valid, or fair to enforce, and he was entitled to nothing less than reasonable notice of termination.
MacGregor’s argument is derived from the “changed substratum doctrine”. In the employment law context, the doctrine provides that if an employee enters into a contract of employment that limits entitlement to notice of termination, the notice period will not be enforceable if, over the course of employment, the underlying terms of the agreement concerning the employee’s responsibility and status have significantly changed.
Though the Court did not decide the issue of whether or not the notice of termination provision ought to be set aside, the Court agreed that this was a genuine issue for trial. The matter will proceed to a full trial, unless it is settled beforehand. It seems safe to assume that any settlement discussions will involve figures that extend beyond the termination provision contained in the 2008 contract of employment.
This case is a useful reminder to employers that employment contracts are not set in stone. A bargain struck when an employee enters the organization at an entry level will not necessarily remain valid once he or she progresses through the ranks into management and executive levels. To mitigate the risk of employment agreements going ‘stale’ employers are well advised to review and refresh contracts of employment prior to any promotions. The lawyers at CCP are well equipped to assist employers in the implementation of employment agreements, at any stage of the employment relationship.
Please Note: This blog has been prepared as an informational service for our clients and other interested parties. It is not intended to constitute legal advice, a complete statement of the law or opinion on any subject. Although we endeavour to ensure the accuracy of the content, no one should act upon the information provided without a thorough examination of the law after the facts of a specific situation are fully considered.