Contractual Terms that Allow the Employer to Change the Terms of Employment
An employer can insert language into an employment contract offered to a new employee that will provide it with the right to unilaterally change the terms of employee’s employment without employee’s consent. However, a court may refuse to enforce the contractual term when determining whether a constructive dismissal has occurred. Employment contracts, in contrast to commercial contracts, are presumed not to be the product of an agreement between parties of equal bargain power. Therefore, a court may use its authority to prevent an employer from relying on an unreasonable contractual term.
The Supreme Court of Canada in Farber addressed the ability of an employer to draft an employment contract that provides it with the right to make changes to the employee’s position and compensation. At paragraph 25, the court wrote:
On the other hand, an employer can make any changes to an employee’s position that are allowed by the contract, inter alia as part of the employer’s managerial authority. Such changes to the employee’s position will not be changes to the employment contract, but rather applications thereof. The extent of the employer’s discretion to make changes will depend on what the parties agreed when they entered into the contract. [emphasis added]
In BMO Nesbitt Burns Inc. v. Bond1 the Court held that the employer had a right to unilaterally change its employees’ commission structure. Relying on Farber, the Court found that the change to the employer’s commission structure did not support constructive dismissal because, while the employment contract did not provide for a particular level of commission, the employees where aware that the employer’s employment manual, which the Court found formed part of their employment terms, permitted adjustments to their compensation.
Similarly, in Churchill v. Stockgroup Media Inc.2 the British Columbia Superior Court held that the employer’s changes to the employee’s commission plan did not amount to a constructive dismissal because the employment contract provided the employer the explicit right to change the employee’s compensation at any time.
However, the ability of an employer to rely on the language of the employment contract to allow it to make fundamental changes to its employees’ employment contracts is limited. This was made clear by the Ontario Court of Appeal in Belton v Liberty Insurance Co. Of Canada3 In Belton, the Court of Appeal considered whether the employees’ refusal to acknowledge the employer’s right to make changes in the compensation plan contained in the contract of employment justified the employer’s dismissal of the employees who refused to sign the “new” agreement containing the revised compensation plan. The Court of Appeal held that failure to sign did not constitute grounds for dismissal and if the employer wished to dismiss its employees who refused to sign, pay in lieu of reasonable notice was required.
In reaching its decision the Court of Appeal set out the policy reasons that a court may rely upon to find a constructive dismissal despite explicit language in the employment contract allowing the employer to unilaterally change the employee’s terms of employment. Justice Juriansz, writing for the Court, wrote at paragraphs 22 to 24:
Whether the courts should develop the common law to place a duty on employees to affirmatively acknowledge an employer’s right to make unilateral changes to the terms and conditions of their employment, even where such right is granted by contract, must be determined according to the policy considerations that animate employment law. MacPherson J.A. in Ceccol v. Ontario Gymnastic Federation 2001 CanLII 8589 (ON CA), (2001), 55 O.R. (3d) 614 (C.A.) recapitulated that the common law should be interpreted to protect vulnerable employees. He said (at para. 47):
In an important line of cases in recent years, the Supreme Court of Canada has discussed often, with genuine eloquence, the role work plays in a person’s life, the imbalance in many employer-employee relationships and the desirability of interpreting legislation and the common law to provide a measure of protection to vulnerable employees:[references omitted].
The line of cases to which MacPherson J. A. referred includes Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC),  3 S.C.R. 701, Machtinger v. HOJ Industries, 1992 CanLII 102 (SCC),  1 S.C.R. 986, and Reference Re Public Service Employee Relations Act (Alta.), 1987 CanLII 88 (SCC),  1 S.C.R. 313. Dickson C.J., in Reference Re Public Service Employee Relations Act (Alta.)) wrote (at para. 91): “Work is one of the most fundamental aspects in a person’s life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person’s employment is an essential component of his or her sense of identity, self-worth and emotional well-being.” Iacobucci J., writing for the majority of the Supreme Court of Canada in Machtinger, noted (at para. 30) that the manner in which employment can be terminated is of fundamental importance to the individual. He quoted with approval the following passage:
… the terms of the employment contract rarely result from an exercise of free bargaining power in the way that the paradigm commercial exchange between two traders does. Individual employees on the whole lack both the bargaining power and the information necessary to achieve more favourable contract provisions than those offered by the employer, particularly with regard to tenure.
[From K. Swinton, “Contract Law and the Employment Relationship: The Proper Forum for Reform” in B. J. Reiter and J. Swan, eds., Studies in Contract Law (Toronto: Butterworths, 1980), 357 at 363.]
Iacobucci J., writing the majority decision in Wallace, quoted this passage again, emphasizing his view of the accuracy of its observation regarding the power imbalance in employment relationships. Iacobucci J. went on to point out that this unequal balance of power in an employment relationship led the Supreme Court of Canada, in Slaight Communications Inc. v. Davidson, 1989 CanLII 92 (SCC),  1 S.C.R. 1038, to recognize employees as a vulnerable group in society. Iacobucci J. noted that for most people, work is one of the defining features of their lives and that any change in their employment status is bound to have far-reaching repercussions. He said (at para. 95):
The point at which the employment relationship ruptures is the time when the employee is most vulnerable and hence, most in need of protection. In recognition of this need, the law ought to encourage conduct that minimizes the damage and dislocation (both economic and personal) that result from dismissal.
In conclusion, a clause in an employment contract that purports to allow the employer to unilaterally change the terms of employment is more likely to be enforced by the court if it is limited in its scope. A clause that allows the employer to make any change to the terms of employment without notice will likely to struck by the court as unenforceable. A court will consider the nature of the employment relationship, the specific language used in the employment contract and the significance of the unilateral change before deciding whether to enforce the contractual clause.