Employee Fired After Refusing Contract Changes

Written by on September 10, 2008 in Published Articles

Published in CELT (Canadian Employment Law Today Issue No. 517 – September 10, 2008

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If an employee refuses to accept an employer’s unilateral change to a term of their employment when not notified that such a refusal will result in their termination once the notice period of the change is complete, then the employer will be found to have wrongfully dismissed the employee if the employee is terminated on such grounds.

By Ronald S. Minken, LL.B.

A RECENT ONTARIO Court of Appeal case of Wronko v. Western Inventory Services Ltd. [2008] O.J. No. 1589 (“Wronko”) provides insight as to how an employer should handle a situation where an employee refuses to accept a unilateral change to a term of their employment when reasonable notice of this change is given. In particular, the decision seems to require that an employer notify an employee who clearly refuses the change that further refusal will result in the termination. If the employer fails to notify the employee of this, then the termination of the employee for refusing the change will be considered a wrongful dismissal.

In this case the employee had an employment contract with the employer which contained a termination provision allowing two year’s pay if terminated. The employer attempted to shorten the provision to thirty weeks, but the employee refused to sign an agreement to this affect. In response, the employer notified the employee that the new termination provision would come into effect in two years. Again, the employee made his disapproval of the change known to the employer.

Once the notice period had elapsed, the employer wrote an e-mail to the employee indicating that the new termination provision was in effect and that “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 responded by acknowledging that he understood his employment to be terminated and requested his severance package of two years. The employer told the employee that he had not been terminated, but rather that his employment contract had been amended with the new termination provision. The employee did not return to work and was not given his two year severance package.

In rendering a decision, the Trial Judge, believing this case to be one involving a constructive dismissal pursuant to Farber v. Royal Trust Co., [1997], held that the employer had the right to unilaterally alter the termination provision of the employee’s contract because reasonable notice was given to the employee of this change. With this concept in mind, the Trial Judge dismissed the employee’s claim finding that the employee had ended the employment relationship.

The Court of Appeal disagreed with the Trial Judge’s decision in two ways. First, the Court of Appeal found that the employee had not ended the employment relationship, but rather it was the employer who had done so by giving the employee an ultimatum that he accept a term which the employer knew the employee did not agree with. Secondly, the Court of Appeal disagreed with the Trial Judge’s position that this case was one concerning a constructive dismissal pursuant to Farber. As the Court of Appeal stated in Wronko, “The Supreme Court in Farber was faced with a situation where the plaintiff, a senior manager, was given one month notice by his employer that he had to accept a demotion or resign. The plaintiff refused to report to this new position and sued for constructive dismissal. The Farber decision must be interpreted in light of these facts. The Supreme Court in that case was not purporting to outline the rights and obligations of the parties in circumstances where an employee registers an unequivocal rejection of an intended fundamental change to the terms of his employment and where the employer permits him to continue to work according to the existing terms without giving notice that refusal to accept the new terms will result in termination. Those are the circumstances in the present case.”

The Court continued by stating, “On the facts of the present case, the trial judge erred in treating this case as though the employee had chosen…an action for constructive dismissal as discussed by the Supreme Court in Farber. This error is understandable. In many cases, where an employer imposes a unilateral change of a fundamental term of an employment contract, the employee’s response will be to sue for constructive dismissal because the change will have an immediate and undesired impact on the employee. For example, a unilateral change may represent an immediate demotion of the employee…In the present case, the unilateral change did not have an immediate impact on the employee. Wronko’s response to the attempted change and Western’s reaction to his response bring this case outside the constructive dismissal context…”

The distinction appears to be that in the case at bar, the Court of Appeal viewed the change as not having an immediate impact on the employee and the employer effectively terminated the employee, therefore not bringing Wronko within the constructive dismissal context as was Farber.

In drawing this distinction, the Court of Appeal stated that the employer should have either informed the employee that refusing the new provision would result in their termination and re-employment under the new term would be offered, or permitted the employee to continue working pursuant to the original provision. Since the employer did not elect the former of these two choices the Court of Appeal found that the employer acquiesced to allow the employee to continue employment pursuant to his original termination provision and, since the employee was found to have been terminated, was entitled to the two year severance package.

This decision seems to indicate that reasonable notice of a unilateral change to a term of an employment contract, by itself, is not enough when the employee objects to it. In addition to the notification, the employer must inform the employee that their refusal to accept the new term will result in the employee’s termination. In accordance with Wronko,if this warning is not provided, then an employer will likely be found to have wrongfully dismissed the employee.

Authors: Ronald S. Minken, B.A.(Hon.), LL.B. is a senior lawyer at Minken & Associates P.C., an employment law boutique located in Markham, Ontario. Ronald gratefully acknowledges Kyle Burgis and Sara Kauder for their assistance in preparation of this article.

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