Employment Contracts



Downward Change Goes Down

Rasanen v Lisle-Metrix 1 considered the peculiar argument that the substratum had disappeared when the plaintiff was demoted, as opposed to promoted. The substratum argument, as discussed above, is applied where the employee has been promoted to a more senior position.

This argument, needless to say, went nowhere:

40 It is interesting to note that 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, and not a demotion. There is a logic to this. One would expect that an enhancement of position, salary and benefits would be accompanied by an enhancement of the entitlement to notice. It is not obvious, however, that a diminution of position, salary or benefits would be accompanied by an enhancement of the entitlement to notice. To apply the substratum caselaw to a demoted employee such as the plaintiff tends to make this argument almost indistinguishable from the plaintiff’s second argument. That argument, as I have mentioned, is based on an allegation of the unilateral breach of fundamental terms of the contract of employment.

This submission may have greater weight when it is considered in the context of the more responsible position being attached to a contractual term that is aligned more logically to the more senior position. For example, an otherwise enforceable restrictive covenant may make less sense when paired to a position of lesser confidence or duties or is no longer one of a fiduciary nature.

This would certainly be the case in Ontario should the employee be demoted from a position which is exempted from the ban against non-competition agreements to one which denies such a contractual term. This is a distinct argument but it illustrates the concept well.