Legal Blog

Changed Substratum

We learn new things every day. It seems that, for purposes of wrongful dismissal, there is a common law doctrine of “changed substratum.” Under it, provisions in a written employment contract that restrict or limit the amounts payable to a dismissed employee may be unenforceable. The doctrine applies if (i) there were fundamental expansions in the employee’s duties after the employment contract was made so that the foundation of the employment contract had disappeared or substantially eroded, or (ii) it can be implied that the contract could not have been intended to apply to the role the employee ultimately performed.

This issue was discussed in Celestini v. Shoplogix Inc. et al 2023 ONCA 131.

Contract

The plaintiff entered into a 2005 contract by which he was employed as the chief technology officer. That role did not involve sales, travel, infrastructure responsibilities, or financing, roles that the plaintiff assumed in 2008. The trial judge held that these responsibilities were “substantial and far exceeded any predictable or incremental changes to his role that reasonably would have been expected when he started as CTO in 2005.” The Court of Appeal held that the trial judge had made no palpable or overriding error in his findings.

As a result of this finding, the provision in the 2005 contract that provided for a specified notice period did not apply and the common law rules did.

The Court of Appeal did note that a written contract could oust the application of the changed substratum doctrine if it expressly provided that its provisions, including its termination provisions, continued to apply even if the employee’s position, responsibilities, salary, or benefits changed. The 2005 contract did not do this.

Image courtesy of Mohamed_hassan.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.