The three options that are available to employees if their employer unilaterally changes a fundamental terms of their employment contracts was set out by the Ontario Court of Appeal in Wronko v. Western Inventory Service Ltd,1 Chief Justice Winkler summarized the options as follows:
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.
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.
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.
The third option set out in Wronko, allowing the employee to reject the change, has created some uncertainty in the law with regards to how that option, as a practical matter, can be relied upon by an employee in various constructive dismissal fact scenarios. As a result, it is been the topic of discussion between Toronto employment lawyers. If, as an example, it is obvious that the fundamental change made by the employer is final and irreversible, how long can the employee realistically continue to reject the change? It is submitted that at some point in time the employee should be found to have acquiesced to the change because the employee continued to work for the employer, despite the change and despite the fact that the employer failed to respond to the employee’s rejection of the change by giving proper working notice of the change. Given the uncertainty, it is useful to consider the facts in both Wronko and Hill in detail.
In Wronko, the employee had been a vice-president who had worked for the company for 17 years. When the employee had been promoted to vice-president in 2000, he signed a new employment contract that provided him with a lump sum payment representing two years’ salary in the event that he was terminated from his employment. In June 2002, the employer sent the employee a new contract that reduced the employee’s entitlement upon termination from two years’ pay to three weeks’ notice or pay in lieu of notice for each year of employment, to a maximum of thirty weeks.2 The employee refused to sign the new employment contract. In September 2002 the employer notified the employee that the new termination provision would come into effect in two years’ time. The employee continued to object to the termination provision. In September 2004, the employer took the position that the new termination provision was now in effect and asked the employee to sign the new employment contract. The employee refused and the employer responded by a letter that stated: “if you do not wish to accept the new terms and conditions of employment as outlined, then we do not have a job for you.” The employee took the position that he had been terminated from his employment and did not report to work the next day.
Reviewing the facts, the Ontario Court of Appeal held, at paragraph 40, that the employer had been aware of the employee’s opposition to the new contract since September 2002. Therefore, the employer had two choices:
- it could advise the employee that his refusal to accept the new contract would result in his dismissal and that re-employment would be offered on the new terms (i.e. the new termination provision would come into effect); or
- it could accept that there would be no new agreement and the employee’s employment would continue on the terms of his existing 2000 employment contract.
Since the employer had not provided the employee with notice that it intended to treat his objection to the change s to the employment contract as grounds for dismissal (option #1) the employer was found to have acquiesced to the employee’s position and have accepted that the terms of the 2000 employment contract would remain in effect. The employer, having been found to have dismissed the employee, was ordered to pay damages in the amount of two years compensation.
Hill, the decision followed by the Court of Appeal in Wronko, had considered the case of a commissioned salesman who claimed back wages from his employer after it had unilaterally reduced his commission payments. Each member of the three judge panel wrote separate decisions. The Court in Wronko followed the decision of Justice Mackay who wrote as part of the majority in Hill.
The facts considered by the Court in Hill are straight forward. In October 1954 the president of the company informed his sales staff that that he was setting up a reserve for bad debts and that 10% would be deducted from their commission payments. The plaintiff/employee continually objected to the deductions taken from his commissions but remained with the company because he felt he had no choice because he could not quit until he found another job. He remained with the employer for another 15 months before resigning.
The 10% deductions from the commissions that commenced in October 1954 continued during the remainder of the plaintiff’s employment which terminated in January 1956, a period of approximately 15 months. In dissent, Gibson J. A. found that the plaintiff had accepted the new contractual terms by remaining employed by the defendant, despite the plaintiff’s persistent objections.
At the original trial the plaintiff had testified during cross-examination as follows:
This is what puzzles me, after Mr. Gorman started deducting ten percent from your commission in 1954, why would you continue to work until 1956, if you were not agreeing to it?
A. If you notice, in Exhibit one, the contract says I cannot quit and go in competition and sell any merchandise Mr. Gorman sells for a period of a year, within a radius of thirty-five miles, and I had been selling tobacco for six years, and that is all I knew. I was waiting for an opportunity to get another job.
Q. You were waiting for an opportunity, so, you were accepting the terms of pay Mr. Gorman offered?
A. I accepted, because I couldn’t quit.
Q. You had no alternative but to accept?
In light of the testimony set out above, the majority of the Court of Appeal found that the plaintiff had never consented to the change because the plaintiff had continuously objected to the deductions made by his employer. As a result, the employer was liable for damages representing the 10% that had deducted from the plaintiff’s commissions since October 1954. In dismissing the appeal, Justice Mackay wrote at paragraphs 44 to 46:
I am respectfully of opinion that it cannot be said, as a matter of law, that an employee accepts an attempted variation simply by the fact alone of continuing in his employment. Where an employer attempts to vary the contractual terms, the position of the employee is this: He may accept the variation expressly or impliedly in which case there is a new contract. He may refuse to accept it and if the employer persists in the attempted variation the employee may treat this persistence as a breach of contract and sue the employer for damages, or while refusing to accept it he may continue in his employment and if the employer permits him to discharge his obligations and the employee makes it plain that he is not accepting the variation, then the employee is entitled to insist on the original terms.
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.
If the plaintiff made it clear to [the defendant employer] that he did not agree to the change made in September, 1954, the proper course for the defendant to pursue was to terminate the contract by proper notice and to offer employment on the new terms. Until it was so terminated, the plaintiff was entitled to insist on performance of the original contract.
The analytical reasoning set out in Wronko and Hill was applied by Justice Gray of the Ontario Superior Court of Justice in a unique way in Russo v. Kerr Bros. Ltd.3 Justice Gray heard a summary judgment motion of an employee who earned approximately $114,000 per year, which included a lump sum payment of approximately $30,000. The employer experienced economic difficulty and, as a result, in April 2009 dissolved the pension plan and reduced all employees’ wages by 10%. In July 2009 the employer reduced the employee’s salary to $60,000 and discontinued his bonus. The employee continued in his employment but informed his employer through his legal counsel that he did not accept the employer’s attempts to change the terms to his employment contract. The employee continued to work for the employer and sued for damages.
Justice Gray agreed that the employee had the right to reject the employer’s unilateral change but remain employed in order to mitigate his damages. The learned judge wrote at paragraphs 44 and 45:
Once the defendant had been told that the plaintiff accepted that a constructive dismissal had occurred, and that he did not accept the new terms and conditions, the defendant could have told the plaintiff to leave the workplace. Alternatively, the defendant could have kept the old terms and conditions in place for the period of reasonable notice. However, the defendant did neither. It simply allowed the plaintiff to remain in the workplace knowing that the plaintiff took the position that he had been constructively dismissed, and that he did not accept the new terms.
In the circumstances, the defendant must be taken to have understood that the plaintiff was remaining in the workplace, but not under the acceptance of any changed terms and conditions of employment. There is no reason in principle, in my view, why the plaintiff cannot be considered to be mitigating his loss by so doing.
Although the employee in Russo explicitly informed his employer that he had been constructively dismissed and that he intended to continue to work, it is unsettled as to whether the employee had to do so. Applying Wronko, another option was for the employee to clearly and unequivocally reject his employer’s attempt to unilaterally change the terms of his employment contract. The employer, upon learning that the employee had rejected the unilateral change would have been left with the choice of either acquiescing to the employee’s position or providing the employee with notice that his current employment contract would be terminated.
Wronko was distinguished in 2012 by the Ontario Divisional Court in Kafka v. Allstate Insurance Company of Canada.4 The company employed insurance agents who, prior to 1997, the company operated its business in such a way that each insurance agents, although employees, operated in some ways as if they owned their own business. The agents were paid commission sold through Neighbourhood Office Agencies (“NOAs”) which rented spaced and hired and trained personnel.
The company decided to change its business model. It would eliminate the NOAs and consolidate operations in larger offices. The agents’ compensation structure also changed. Commissions were eliminated and, instead, agents would receive bonuses based on the success of their office.
The agents were provided 24 months’ notice of the change by way of a letter dated July 24, 2007. The changes were scheduled to take effect in September 2009. The company considered the 24 month period to be “working notice” of the change to the terms of employment.
The Divisional Court distinguished the Court of Appeal’s decision in Wronko writing at paragraphs 40 to 42:
The circumstances of Wronko, however, are not those of the present case. The general announcement and individual letters sent by Allstate in July 2007, as well as the notice provisions provided, made it very clear that the changes would be implemented in September 2009. The record does not support the inference that employees were permitted to continue as though nothing was changing. There was a clear transitional period and it was understood as such. Some employees accepted the new positions offered, some negotiated further changes, and some resigned. In the meantime, Allstate provided compensation during the 24 month period of notice that maintained or exceeded employees’ prior levels of compensation.
This was not a case, like Wronko, where the employer issued an ultimatum following a period of time in which it had permitted an employee to continue employment after he had refused to accept proposed terms. In Wronko, the two year period between 2002 and 2004 was one of some ambiguity. As the Court held, it was not made clear to Mr. Wronko that he would be terminated if he did not accept the change prior to September 2004. It makes sense, in those circumstances, that the two year period prior to September 2004 would not be considered as notice.
This case is very different. There was no ambiguity, in my view, in Allstate’s position. The changes it announced were to be implemented, and were in fact implemented, in September 2009. The appellants submit that the only option open to Allstate in the circumstances would have been to terminate all the employees and then offer them new contracts of employment at that time. However, in these circumstances, unlike Wronko, there could be no suggestion that Allstate was acquiescing to the continuation of the Old Model.
Reconciling Wronko and Kafka, the determination as to whether an employer has given an employee proper notice of a pending fundamental change is ultimately a question of fact. If the notice of the change provided by the employer is clear and unambiguous that the terms of the employee’s employment contract will change at a set date in the future, and the length of notice is reasonable, then that notice should be sufficient to prevent the employer from claiming constructive dismissal. However, if the employee rejects the employer’s notice of change, the employer should nevertheless respond by informing the employee that it will terminate the employee’s employment contract at the end of the notice period and simultaneously offer the employee a new employment contract containing the revised terms.
If you want legal advice that is specific for your case, book a consultation today.
- Wronko v. Western Inventory Service Ltd., 2008 ONCA 327;
- The termination provision in the 2000 employment contract was also unenforceable because it potentially breached the minimum standards of the ESA. The termination provision offered a maximum of 30 weeks’ notice. However, the ESA provides up to 34 weeks’ notice and severance. A termination provision that potentially breaches the ESA in the future is void and does not rebut the presumption of reasonable notice. (see: Shore v. Ladner Downs (1998), 160 D.L.R. (4th) 76 (B.C.C.A.));
- Russo v. Kerr Bros. Ltd., 2010 ONSC 6053;
- Kafka v. Allstate Insurance Company of Canada, 2012 ONSC 1035 (Div. Ct);