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Termination Clause Unenforceable Due to Change in Responsibilities

Termination Clause Unenforceable Due to Change in Responsibilities

By:

Posted April 25, 2023

In a case that recently was decided from the Court of Appeal of Ontario called Celestini v Shoplogix Inc., 2023 ONCA 131, the Court had to determine whether or not a termination clause within an old contract could be invalidated based on a change to an employee’s position in the organization even though there had been no change of title.

In this case, the individual, Mr. Celestini, was one of the co-founders of a company called Shoplogix. He originally served as Chief Executive Officer. In 2005, a venture capital firm purchased some of the shares of Shoplogix, and Mr. Celestini was given the position of Chief Technology Officer.

Mr. Celestini signed into an employment contract on May 17, 2005. The contract permitted Shoplogix to dismiss Mr. Celestini without cause by giving one month’s written notice and continuing to pay his salary for 12 months. The organization changed under a new CEO, and Celestini’s workload and responsibilities increased substantially. In particular, the case sets out the new tasks added to his employment as follows:

  1. managing important sales and business development activities;
  2. handling technical solutions management and quality assurance matters;
  3. directing managers and staff who were reassigned to report directly to him;
  4. pursuing business opportunities with international partners that introduced global travel requirements;
  5. handling a range of company infrastructure and administrative matters; and
  6. contributing significant work to solicit investment funding.

Mr. Celestini argued that the changes to his position meant that the changed substratum doctrine applied and that he was entitled to reasonable notice instead of the 12 months mandated under his employment contract.

As an aside, the changed substratum doctrine operates as a limit on when an employee’s common law entitlements will be restricted by an express term of a historical contract, and is meant to come into play when there is potential unfairness of applying the contract’s termination provisions to circumstances that were not contemplated at the time of contracting. The doctrine can apply if an employee enters into an employment contract that specifies the notice period for a dismissal. The contractual notice period specified in the contract is not enforceable, if over the course of employment, the important terms of the agreement concerning the employee’s responsibilities and status has changed significantly. Where the doctrine is applicable an employee would be entitled to reasonable notice instead of the notice requirements under the contract.

In this case the Court of Appeal upheld the lower court’s decision concerning the change of duties, determining that they had been changed substantially and fundamentally over the course of his employment, such that the changed substratum doctrine applied.

The result was that Shoplogix could not use its contractual termination clause as a way to save it from reasonable notice owed to the employee.

One important note from the Court of Appeal at paragraph 35 of the decision, is that an employment contract can oust the application of the doctrine if it expressly provides that the contract provisions, including termination provisions, continue to apply even if the employee’s position, responsibilities, salary or benefits change.

For employers, it is important to consider individuals who may have had a series of promotions and are operating on an old contract. While these individuals may be key individuals to your organization, they should be receiving new contracts for every promotion (unless you have specific language as outlined above which is an exception). When providing employees with a promotion, and a raise, it is a good idea to take a look at the old contract to see if it can be improved upon and ensure that it is currently up to date with current case law.

This blog post was written by Travis Ujjainwalla, a member of our Employment Law team.  He can be reached at 613-566-2060 or at travis.ujjainwalla@mannlawyers.com.

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Travis Ujjainwalla

Travis Ujjainwalla

I am a member of the Employment, Human Rights, and Labour group.  I have represented clients on litigation matters including, wrongful dismissals, constructive dismissals, human rights claims, and employee grievances. I give advice on various pieces of legislation including, the Employment Standards Act, the Labour Relations Act, the Ontario Human Rights Code, the Canada Labour Code, the Canadian Human Rights Act, the occupational Health and Safety Act, the Workplace Safety and insurance Act, and the Personal Information and Electronics Act. I also provide advice on employer rights under Collective Agreements. I have represented clients within the Ontario Human Rights Tribunal, the Ontario Labour Relations Board, the Workplace Safety and Insurance Board, and the Ontario Superior Court of Justice. I have also helped unionized employers deal with grievances at arbitration. After receiving my LL.B. from the National University of Ireland Galway, I was called to the Ontario Bar in 2017. I... Read More

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