Insights

In a recent case from Ontario a long-term employee was fired without a specific reason based on his employment contract. 

The contract said the employee was only entitled to 12 months' pay as severance, which the employer paid accordingly. However, the employee argued that he deserved more notice because the termination clause in his contract was unenforceable. He relied on the “changed substratum” doctrine, which means that when an employee's responsibilities have expanded beyond what was initially agreed upon, the original termination provisions in the contract no longer apply. The employee succeeded in his claim and received 18 months' pay. 

Parties to an employment contract can specify the entitlements upon termination through an express contract, if they comply with the statutory requirements.  If such contractual terms are in place, they will govern the employee's entitlements instead of the implied term of reasonable notice.  Typically, a provision that limits the employee to the minimum statutory requirements will result in a smaller termination payment compared to common law entitlements. 

The changed substratum doctrine acts as a limitation on when an employee's common law entitlements can be restricted by the explicit terms of an employment contract.  Since the employer-employee relationship can evolve over time, the doctrine acknowledges the potential unfairness and inappropriateness of applying termination provisions to circumstances that were not anticipated when the contract was formed.  This includes situations where an employee is promoted or assumes additional responsibilities beyond what was initially contemplated, even if their job title remains the same. 

Employers can take practical steps to minimize the risk of the changed substratum doctrine rendering their contracts unenforceable, such as: having employees acknowledge, in writing, that existing employment contracts continue to apply; having a new employment contract entered into with a promotion; and stating explicitly that the terms of employment contract will continue to apply, even when there is a promotion or other change in employment.