Can I make changes to an employee’s compensation or benefits? How do I implement a new policy regarding progressive discipline? What do I do if an employee refuses to accept these changes? Employers often wish to make unilateral changes to employment contracts, however managing such changes without creating the basis for a constructive dismissal claim can be tricky. The Ontario Court of Appeal’s recent decision in Wronko v. Western Inventory Service Ltd., (“Wronko”),1 has addressed the issue of what employers must do in order to give effective notice.
In Wronko, the plaintiff vice president had negotiated a two-year severance provision in the event of his dismissal without cause. When a new company president was appointed in 2002, the president reviewed all employment contracts in place and sought to reduce the severance provision in Mr. Wronko’s employment agreement to two weeks per year of service to a maximum of 30 weeks. Not surprisingly, Mr. Wronko refused to sign any amending agreement. Even though Mr. Wronko was provided with two years’ notice of this change to his severance clause, the Court of Appeal decided that he was constructively dismissed and entitled to damages. The Court further concluded that the employer terminated the plaintiff’s employment without notice or cause when it advised him that there was ‘no job’ for him unless he accepted the changed contract.
Based on the scenario presented in Wronko, the Court of Appeal ruled that when Mr. Wronko refused to accept the new severance clause, the employer had two available courses of action: (i) to advise him that failure to accept the new contract would result in his termination, and that reemployment would be offered on new terms, or (ii) to accept that there was no new contract and allow Mr. Wronko to continue to work under the existing terms.
The following tips are offered to ensure effective notice is given when making a unilateral fundamental change to an employment contract:
- Provide reasonable notice to an employee, in writing, before implementing what may amount to an amendment of a fundamental term of the employment contract. “Reasonable” notice is unique to each employee and depends on the individual’s years of service, age, position and salary. Twenty-four (24) months’ notice is considered the high-water mark for most reasonable notice awards.
- Employees should be required to sign the letter and return it to the employer, indicating their acceptance of the change. For employees who accept the change, the employer will be able to make the fundamental change at the end of the notice period.
- Where an employee objects to the change, the employer should provide the employee with written notice of termination effective at the expiry of the reasonable notice period.
- The notice of termination should be accompanied by a written offer of reemployment, effective when the notice expires. This new offer of employment should clearly state that employment will be on the same terms and conditions as the current position, with the exception of the fundamental change at issue.
- Don’t forget to ensure that all such communication is in writing!
It is now clear that merely providing an employee with reasonable notice of a fundamental change to his or her terms of employment is no longer sufficient. Following Wronko, an employee’s refusal to acquiesce to such a change necessitates reasonable notice of termination and re-hire according to the new terms and conditions of employment.