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Wronko v. Western Inventory: When can an employer amend the terms of an employment contract?

You are an H.R. manager and you learn that one of your senior officials has a term in his employment contract that you don’t like, say, a requirement to give 2 years’ notice of termination.  You would like to be able to turf the guy with less notice than that.  So you ask him to sign a new contract that requires only 30 weeks’ notice of termination.  The employee tells you to take a hike, and insists on the original contract.   Now what can you do if you are the employer?

contractLabour law students should know the answer, because this is Hill v. Gorman all over again, one of my favorite cases to teach.  In Hill,  the employer began withholding 10 percent of an employee’s commissions to cover bad debts, but the employee objected.  The right to withhold was not in the employment contract, so amounted to a breach of contract by the employer.  The employee continued to work, but never agreed to the withholding practice.  When the employee later quit, he sued successfully to recover all of the withheld money.   The moral of the storyan employer cannot unilaterally amend a significant term of the employment contract without the employee’s agreement.

What then can an employer do if it wants to change terms of an employment contract and the employee won’t agree? The Court in Hill told us the answer:  it must serve proper notice of termination of the contract, and when the notice is up, offer the employee a new contract with the revised terms.  Easy, right?

So what happened in the recent OCA case, Wronko v. Western Inventory?  When the employee refused to accept the revised notice term of 30 weeks (instead of 2 years), the employer served 2 years’ notice of its unilateral revision of the notice term.   That’s different then giving 2 years’ notice of termination of the contract in its entirety.   The employee told the employer it would not agree to that change, even after the two years was up.  But the employer simply waited 2 years, and then told the employee that if he did not accept the new term (3o weeks’ notice) then “we do not have a job for you”.  The employee treated that as a dismissal, and sued for wrongful dismissal, claiming the 2 years’ pay as per the original term of the contract.

He won.  The OCA relied on Hill, and provided a nice restatement of the law answering the question, what can an employee do if her employer changes a fundamental term of the employment contract without her consent:

[34]First, the employee may accept the change in the terms of employment, either expressly or implicitly through apparent acquiescence, in which case the employment will continue under the altered terms.

[35]Second, the employee may reject the change and sue for damages if the employer persists in treating the relationship as subject to the varied term.  This course of action would now be termed a “constructive dismissal”, as discussed in Farber, although this term was not in use when Hill was decided.

[36]          Third, the employee may make it clear to the employer that he or she is rejecting the new term.  The employer may respond to this rejection by terminating the employee with proper notice and offering re-employment on the new terms.  If the employer does not take this course and permits the employee to continue to fulfill his or her job requirements, then the employee is entitled to insist on adherence to the terms of the original contract.  In other words, if the employer permits the employee to discharge his obligations under the original employment contract, then – unless proper notice of termination is given – the employer is regarded as acquiescing to the employee’s position.  As Mackay J.A. so aptly put it: “I cannot agree that an employer has any unilateral right to change a contract or that by attempting to make such a change he can force an employee to either accept it or quit.”

So all the employer had to do in Wronko was provide notice of termination, and not notice of a change in the notice term.   That was costly mistake that I know none of my students would make ;)

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