In Wronko1, the Ontario Court of Appeal determined that an employee was not bound by two years’ notice of a fundamental change to his terms of employment.

The decision was based on the specific facts and the ongoing interaction of employee and employer. The employee was an executive with 17 years service who had negotiated an employment contract with the president of the employer that provided two years’ salary on termination. A new president was appointed who attempted to reduce the termination entitlement from two years’ pay to 30 weeks’ pay. The employee objected to the change and, on several occasions, refused to sign an amended contract. Two years’ notice of a change to the termination entitlement was given. After expiry of the two years’ notice, the employee was again asked to sign an amended contract and it was noted that if the employee did not accept the amended terms “we do not have a job for you”.

The court held that this amounted to termination and the two years’ notice of the amendment did not, in the circumstances, constitute notice of termination or an effective amendment to the terms of employment. Hence the employee had been terminated without notice and was entitled to two years’ pay in accordance with the original terms of employment, less amounts actually earned by the employee during the two years following termination.

The court reviewed the options available to an employee when an employer attempts a unilateral amendment to a fundamental term of a contract of employment:

  1. The employee may accept the change, either expressly or implicitly through apparent acquiescence.
  2. The employee may reject the change and, if the employer persists in treating the change as effective, sue for constructive dismissal.
  3. The employee may make it clear that he or she rejects the change. The employer may respond by terminating the employee on proper notice and offering re-employment on the amended terms. Otherwise, if the employer permits the employee to continue in the job the employee is entitled to insist that the original employment terms continue to apply without change.

Two statements in the judgment raise particular concern for changes to pensions and benefits. The court does not accept that an employer has any unilateral right to change an employment contract or that by attempting to make such a change it can force an employee to either accept the change or quit. The court also noted that the third situation described above may arise particularly when the unilateral change does not have an immediate impact on the employee, as in the Wronko case.

If an employer gives notice of a substantial change to pension benefits or other post-employment benefits there will often be no immediate impact on employees. In light of Wronko, if a proposed change is announced and employees object, the employer’s response may be critical to the ability to impose the change without being exposed to wrongful dismissal claims. Mere notice of the change may not suffice, regardless of the length of notice.

Of course, the legal result will also depend on whether the proposed change constitutes a fundamental change to a term of employment, which is not necessarily an easy matter to determine.

The notice requirements under employment law are in addition to statutory notice requirements regarding adverse pension amendments.

Based on Wronko, an employer enters a legal minefield when announcing substantial changes to pensions or other post-employment benefits. Legal advice regarding the applicable notice requirements is recommended.