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How can an employer amend an employment contract?

If you can’t layoff an employee without breaching the contract, can you change the terms of the contract to make it more palatable to the Employer?

What do you think?  Imagine you want to cut an employee’s pay to deal with an economic crisis, or you want to change some other term that is problematic to the employer.  How can you do that?

Two ways, actually.  

1.  Reach an agreement with the employee to amend the contract

One  is to request and obtain the employee’s agreement to the amendment.  But you need to be careful if that is the route you take.  The problem relates to something called ‘consideration’.  That is a contract law principle that requires that both sides receive something of value in exchange for an agreement to amend a contract.  If the amendment only favours the employer, then it is not enforceable.  

So an employer that wants to amend  an employment contract to, say, reduce pay, must give employee something new as consideration for this.  In recent case (2004) called Hobbs v. TDI, employer changed commission rate of salesperson, the salesperson kept working, but then later quit and sued for wrongful dismissal, saying employer constructively dismissed him by changing commission rate.  The Ontario Court of Appeal agreed, and ruled the revised terms of the contract were unenforceable because employee received nothing new in exchange.  

2.  Terminate the employment contract by giving proper notice, and then offer a new contract with revised terms.

One of my favorite recent (2008) cases in called Wronko v. Western Inventory, also a decision of the Ontario Court of Appeal.   I did an earlier post on this case.  It’s a great law case, but terrible for the employer, who made a critical legal error.

In a nutshell, the employer couldn’t get the employee to agree to reduce the notice of termination required in the contract from 2 years to about 4 months.  So employer said, fine, I am hereby giving you 2 years notice that employer will unilaterally amend the notice term.  When the 2 years was up, the employer presented the employee with the revised contract.  The employee quit and sued for constructive dismissal, and won.  The employer was ordered to pay 2 years’ salary as reasonable notice!  

Moral of the story:  if you can’t get employee to agree to amend contract, you need to terminate the entire contract by giving proper notice, and then offer the employee a new contract on the revised terms.

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9 Responses to How can an employer amend an employment contract?

  1. Dorothy Reply

    June 13, 2014 at 1:19 pm

    Can an employer change the amount of their contributions to your group pension plan and force you to pay 50% of the premium for your group benefits plan (they had been paying 100% since the date of hire) by sending out a company wide memo two weeks before the change will be implemented? I say that constitutes a constructive dismissal. Am I right or is that not enough of a change?

  2. Amanda Reply

    April 10, 2015 at 4:18 pm

    Can the employer create a new contract every school year (for part-time school support staff), even though its an ongoing employment, and then cut the wage by 25% since its on a new contract each year? Employees accepted instead of quitting. Do they have recourse?

  3. Pamela Reply

    September 17, 2015 at 9:59 pm

    I signed and agreed to a contract that was for my employment with a university as a part-time sessional. One month later I was told they made a mistake to the rate of pay I was given on the contract and that I had to sign a new contract indicating a lower level of pay. Are universities able to make that change or do they have to remain with the initial contract? I was led to believe this was okay for them to do, but colleagues have questioned whether they can or not.

  4. Samantha Reply

    October 1, 2015 at 1:17 pm

    My employer is currently reviewing our hours of work per week. I work 37.5 hrs/week, as stated in my position description. My employer wants to change this to 40 hrs/wk. Are they allowed to change the terms of employment, without extra pay? Even if they do pay us for the extra 30 min per day, is this still allowed? Thank you.

    • Sue Reply

      October 22, 2015 at 12:28 am

      My position description states that my hours are 8:30-5:00pm with an hour lunch unpaid for a total of 37.5 hrs/week and now I get notice that my employer wants to change my hours to 8:30-5:30pm for a 40hr/week with NO salary change.

      If my salary contract is based on 37.5hrs/week doesn’t that mean I am taking a pay decrease for their benefit? They aren’t willing to discuss this because they have the “my way or the highway” attitude going on.

  5. brian sterling Reply

    February 10, 2016 at 7:13 pm

    Does a vague “amended terms of employment” equate to a new contract or a continuation of the original?

    Example, an employer and employee have agreed to “Amended Terms” to reflect higher base pay with new commission and bonus plan, expanded duties, promotion to VP and new reporting structure. The “Amended Terms” also speak to the new benefits plan and in general, the “Amended Terms” replace 90% of the original terms, however the original terms have a defined 8 week notice (relevant to the original role) but the “amended terms” are silent on any aspect of notice. is the original notice term continued or nullified?

    Cheers

    Brian

  6. Bob Veats Reply

    November 2, 2017 at 3:48 am

    If my employer changes a contract to reduce severance from 4 months to mandatory minimums, from salary to hourly at reduced hours, and lays me off a month afterwards, would this qualify as constructive dismissal?

    Kind Regards,
    Bob

    • Doorey Reply

      November 6, 2017 at 1:20 pm

      Bob, you should talk to a practicing employment lawyer, but on these facts it sure sounds like grounds for constructive dismissal.

  7. Joe Reply

    November 8, 2017 at 3:50 am

    Can an employer so violate the terms of a contract that the contract can be assumed to be invalid? Can a boss be so bad the contract is void?

    I feel stuck in a horrible contract because of the no-competition clause. There are violations of ESA: no pay stubs, no set hours, no hourly rate of pay (piecework), no public holiday pay. Owed monies. I have emails requesting to be paid etc. Note I’m an aging regulated professional doing this work part-time for a private company (ie not a nonprofit). Thanks, Joe

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