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: Thoughts from a Management Lawyer

Court Throws a Wrench into the Mix

By Michael Fitzgibbon

Every so often a case comes out that is difficult to get your head around.  The recent Court of Appeal case in Wronko v. Western Inventory Services Limited is such a case (to me at least). 

It might be because the Court chose to use terms that have, heretofore, not been known in Canadian employment law.  As an example:,"employment of persons is ?at will?; that is, either party has a right to terminate the employment relationship without cause" but with consequences. 

The case centered on whether the employer could change an important term of the employment contract on notice without triggering liability to damages.

Background

Mr. Wronko commenced employment with Western in 1987 and was promoted in February 2000 to the position of Vice-President of National     Accounts and Marketing.  Following this promotion, he signed a written employment     contract with the company, dated December 20, 2000 that provided, in part, that for payment, on termination, of ?the previous two (2) years salary plus bonus to be paid as termination if notice of termination is given... at any fiscal year end or at any other time?. 

There was a change in management at Western in 2002 and a new president came on board.  At that time, the president delivered a new contract to Mr. Wronko that contained a termination clause that reduced Mr. Wronko?s entitlement to notice of termination from two years to three weeks notice or pay in lieu of notice for each year of employment, to a maximum of thirty weeks.

Discussions ensued and Mr. Wronko did not sign the new contract.  He received legal advice to that effect and wrote to the president saying "If the Company has a reasonable alternative it wishes to put forward, I am prepared to give it due consideration.? No response was received and, instead, Mr. Wronko received a memo which, according to the Court:

..... purported to give him 104 weeks (i.e. two years) notice that the termination provision in his employment contract would be changed to provide that upon termination of his employment, other than for cause, Wronko would be entitled to three weeks notice or pay in lieu thereof for each year of employment, to a maximum of thirty weeks.

Two years and four days after the September 9, 2002 memo was sent to Mr. Wronko ? the president sent him an e-mail attaching the 2002 memo and a contract, which was described as the ?go forward agreement? and set out the termination provision set out in the 2002 memo. The e-mail expressed Davoren?s view that since two years had passed, the new employment contract was now in effect.  He asked Wronko to sign the agreement and return it.  The president ended by saying that ?If you do not wish accept the new terms and conditions of employment as outlined, then we do not have a job for you.? which the Court viewed as significant.

Mr. Wronko took the position that he had been terminated and demanded two years compensation in accordance with his original contract.

At Trial

At trial, the judge identified the real issue as being whether Western had the unilateral right to vary the termination provision in the employment contract upon reasonable notice to the employee.  The court relied on the following quote from Farber in concluding that, although Mr. Wronko had no intention of resigning, he was not entitled to damages:

A constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee. Such action amounts to a repudiation of the contract of employment by the employer whether or not he intended to continue the employment relationship. Therefore, the employee can treat the contract as wrongfully terminated and resign which, in turn, gives rise to an obligation on the employer's part to provide damages in lieu of reasonable notice.

The Court of Appeal disagreed

It found, firstly, that the company terminated Mr. Wronko's employment.  The court went on to distinguish the Farber case.  Specifically, it held that Mr. Wronko had "consistently refused to accept a new contract throughout the last two years".

According to the Court, an employee faced with a unilateral change to a fundamental term of his employment has 3 options:

1.  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.
2. 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?.
3. 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. in Hill said: ?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.?

So, according to the Court, Mr. Wronko presumably fell into category 3 and, as such, he never accepted the altered term of the employment contract and, since the employer allowed him to continue to work under those circumstance, it was stuck with the more generous term in the original contract (i.e. 2 years compensation).

What do we make of this?

Many people are going to be worked up by this case.  It makes things a bit more difficult and, maybe, uncomfortable for the employer.  It might call for a change in strategic approach.  No one likes change, but I don't see this case as being a big deal, albeit a bit impractical at the "in the trenches" level.   

According to the Wronko case, the employer can only change fundamental terms of employment with the employees agreement, either express or implicit.  Where the employee protests, "continuously" and indicates that he or she is not in agreement, then the employer is faced with a choice.  It can terminate the employee immediately with all of the consequences that go along with that under statute, common law and contract that this entails. "Eat crow while it's young and tender" is the tag line here.  Or wait and risk being faced with Wronko.

Another possibility is that, if the employee is not prepared to accept the change, the employer could make it clear that the existing terms will be maintained but that he or she should consider the notice as working notice of the termination of his or her employment.   Door "A" is you accept it and door "B" is that you have no job at the end of the notice period.

I'm still working through this myself and am not certain if this will pass muster, but those are some off the top things to consider. 

Though this was a unanimous decision, I suspect that an appeal may be coming in  Wronko. 

Full post as published by Thoughts from a Management Lawyer on May 09, 2008 (boomark / email).