Modifying an Existing Employment Contract

By Sherrard Kuzz LLP, Employment and Labour Lawyers - an HR-Fusion Strategic Partner

A written employment contract is one of the most effective tools an employer has to quantify and contain employment related liabilities and expectations.

But what happens when an employer wants to change, or introduce, a term or condition regarding an existing employment agreement? For example: compensation, duties and responsibilities, entitlement upon termination, non-solicitation, intellectual property protection, etc.

If done properly, the employer will have put itself in a position to achieve its business objectives. If done improperly, the change may be unenforceable or result in the employee claiming that he or she has been constructively dismissed, resulting in a wrongful dismissal lawsuit.

A recent decision of the Ontario Court of Appeal (Wronko vs. Western Inventory Service Ltd.) has clarified the options available to both the employer and employee in this type of situation. The Court ruled that if an employer seeks to unilaterally change a “fundamental” provision in the contract and the parties cannot agree: a) the employee can seek damages for constructive dismissal, or b) the employer can provide working notice of termination and thereafter offer reemployment under the modified terms. The ruling overturns previous court decisions which permitted an employer to amend an existing employment agreement merely by giving reasonable notice of the change.

Practical Considerations

In light of the Court’s decision in Wronko, we offer a few practical tips related to the making and amending of an employment agreement:

1. Ensure that an employment agreement references every material term and condition of employment.
2. The agreement should be signed by the employee prior to the commencement of work. This does not mean at the beginning of his or her first day, or when the employee commences training. We recommend having a signed employment agreement in hand at least two (2) days prior to the employee commencing any type of work.
3. Should it be necessary to change a provision in the employment agreement, plan the change to coincide with appropriate “consideration” including, for example, a wage increase, benefit increase, discretionary bonus payment or promotion.
4. 4. If the proposed change negatively impacts the employee (i.e. a demotion or reduction in salary) and the employee rejects the proposal, consult legal counsel concerning the appropriate period of notice applicable to the employee involved. At that point, the employee must be given written notice of his or her termination, and then offered new employment on the amended terms.