In Part 1 of our “Mind the Gap” trilogy, we explained how employers can use contractual termination provisions to avoid falling into the common law notice “gap” when employees exit the company. In Part 2, we discussed consideration and timing for introducing existing employees to written employment contracts.
But what if, even after offering valid consideration, an existing employee still refuses to sign a contract modification? This was precisely what occurred in Wronko v. Western Inventory Services and the focus of our final installment in this series.
The Wronko Lesson
In Wronko, the employer gave two years’ advance notice of its desire to change the termination provision in the employee’s employment contract. The termination clause in the existing contract granted the employee two years’ severance and the employer wanted to reduce it to thirty weeks. Two years passed, during which the employee repeatedly refused to accept the new severance provision. After two years, he was presented with the new contract for his signature and was told that, “If you do not wish to accept the new terms and conditions of employment has outlined, then we do not have a job for you.” The employee considered himself terminated and made a claim under the two-year severance pay provision in his original contract.
The Ontario Court of Appeal ruled in the employee’s favour, as given his repeated refusals, it could not be said that there was any true offer and acceptance of the new employment contract. This signaled a departure from the traditional means of implementing changes to employment contracts, where employers could simply offer advance notice of a change it sought to implement.
The Court held that an employer has two options in dealing with an employee who refuses to accept a change to his or her terms of employment.
1. The employer can acquiesce to the employee’s refusal, meaning that the original terms and conditions of employment will continue to apply; or
2. The employer can terminate the employee with proper notice and then offer re-employment on the employment contract it seeks to implement.
Applied to the facts before it, the Court held that in light of the employee’s stated refusals, in order to implement the new contract with the modified severance provision, the employer should have terminated the employee with proper notice and offered to rehire him on the contract’s new terms.
We cannot stress enough that written employment contracts containing clear termination provisions should be a critical piece of an employer’s strategy to contain termination costs and limit overall liability. When properly drafted and implemented, such provisions clarify at the outset what employees will be entitled to at termination and, in doing so, facilitate smoother departures for both employers and the employees in question.