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Changed Substratum Doctrine


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As the Courts continue to make decisions on termination clauses and whether or not they are enforceable, Justice Elson of the Queen's Bench for Saskatchewan in McKercher v Stantec Architecture Ltd., 2019 SKQB 100, decided that a termination clause was unenforceable due to the changed substratum doctrine.
Substratum is defined as:

Noun

  1. an underlying layer or substance, in particular a layer of rock or soil beneath the surface of the ground.
  2. a foundation or basis of something.
    "there is a broad substratum of truth in it";

The changed substratum doctrine is found where there have been significant, radical or dramatic changes in the employee's responsibilities or status since the time the parties entered into the employment contract. Courts will look at whether the employee’s job title, position, level of responsibility, duties, benefits or salary or any other remuneration have changed, and by how much in deciding whether the doctrine has been made out.

In virtually every case where a Canadian court has concluded that the substratum of the employment contract had disappeared, this resulted from a significant promotion of the employee.

The Court of Appeal of Ontario, commenting on this doctrine in Wallace v. Toronto-Dominion Bank, 1983 CanLII 1907 (ON CA), stated that it is "where an employee's level of responsibility and corresponding status has escalated so significantly during his period of employment that it can be concluded that the substratum of an employment contract entered into at the time of his original hiring has disappeared or it can be implied that that contract could not have been intended to apply to the position in the company ultimately occupied by him."

The author of Canadian Employment Law (Ball, Canada Law Book, 1995, as amended), states, at vol. 1, s. 6:170:

Canadian jurists have recognized that contractual terms that are fair in the early part of the employment relationship may be unfair when the employee has developed new skills, has acquired a new position, receives greater remuneration or has additional responsibilities. When these circumstances exist, the Court may hold that the "substratum" of a written contract of employment has disappeared or eroded sufficiently so that, inter alia, terms purporting to limit the amount of notice required for termination of employment no longer have contractual force.

A court will not find that the substratum of an employment contract is removed by anything short of fundamental change. Small and inconsequential changes will not be enough.

In MacGregor v National Home Services, 2012 ONSC 2042, Justice Perell held:

  1. The doctrine provides that if an employee enters into an employment contract that specifies the notice period for a dismissal, the contractual notice period is not enforceable if, over the course of employment, the important terms of the agreement concerning the employee's responsibilities and status have significantly changed.
  2. The idea behind the changed substratum doctrine is that with promotions and greater attendant responsibilities, the substratum of the original employment contract has changed, and the notice provisions in the original employment contract should be nullified.

However, where the parties entered into the Employment Agreement and the employee's change of duty, responsibility, job title, position was in their contemplation at the time of the signing of the Employment Contract, a court may not find that there was such a change of the substratum of the contract and may find that the termination clause is enforceable.

For employees

It is always best to seek out the advice of an employment lawyer upon termination, even if there is a termination clause in your original contract. Not all termination clauses are enforceable, and even if they might be, an employment lawyer can best advise you on whether it or other reasons make it unenforceable.

For employers

It is always best to have an employment lawyer draft your Employment Agreements and continue to provide you with guidance and advice as new caselaw is decided. Just like you visit your doctor for a checkup, it is best to have employment counsel conduct "checkups" of your employment contracts, Employment Manuals and other employment documentation.

There are times within the employment relationship where you may be able to make changes to the employment agreement without running afoul of employment standards legislation or the common law.

If you have a case where an employee's employment has sufficiently changed that you are worried about whether your termination clause is still enforceable, I would be happy to review the facts of the case and provide you with advice on how to best navigate the issues moving forward. Looking at these issues before termination will likely save you money in the long run.