• Court Prevents Employers from Making Unilateral Contract Changes
  • June 26, 2008 | Authors: Vicki L. Giles; Thomas W. R. Ross; Glenn D. Tait
  • Law Firms: McLennan Ross LLP - Edmonton Office ; McLennan Ross LLP - Calgary Office ; McLennan Ross LLP - Yellowknife Office
  • For years, employment lawyers have tended to assume that employment contracts can be unilaterally amended by employers as long as they give reasonable notice of the change. That view was drawn from a few old cases and by logic: if you can unilaterally terminate on notice, why can’t you unilaterally amend?

    However, a recent decision of the Ontario Court of Appeal suggests that unilateral amendments are not quite that easy. This is the first case at the Court of Appeal level to clarify this area since a case decided in 1957. It will be seen by many as significantly enhancing the rights of employees.

    This decision stands for the proposition that an employee has substantial control over unilateral changes that an employer is trying to implement. The employee has the choice of accepting or rejecting unilateral fundamental changes, whether they concern the amount of salary or other terms or conditions of employment, including the notice of termination to which the employee is entitled. If the employee accepts the change, then it takes effect. However, he/she does not have to accept any change. “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.”

    When the employee rejects the change, another option of the employer is to “terminate the contract on proper notice and to offer employment on the new terms.” For many years, many employer counsel believed that changes could be dealt with in a more relaxed fashion. Practice became sloppy. However, the Ontario Court of Appeal has upheld a very strict interpretation of this employer right.

    In this case, the employee received notice in 2002 that the company wanted to change the termination clause in his employment contract because it thought it was too generous. The employee was sent a new contract, but refused to sign it. The company then told him that the contract with the amended termination provision would take effect in two years. In September 2004, the company wrote to the employee to tell him that the new contract was now in effect. The employee was asked to sign the agreement and was told: “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 advised the employer that he considered his employment to be terminated and did not report to work. He sued for wrongful dismissal.

    In the view of the Court, the employer did it the wrong way. The employee had been wrongfully dismissed and was entitled to the damages based on the original contract.

    When the employer heard that the employee did not agree to the change, it should have terminated the employment on notice, offering employment thereafter on the revised terms.

    The case stands as a caution to employers. Unilateral changes are difficult to make. Employers must be much more careful about how they do it than the general practice has been.