Unforeseen Change in Responsibilities

The essential theory of this argument is that the existing employment agreement, and hence the severance term contained therein, was not intended to apply to the new position assigned to the employee, given a fundamental improvement in responsibilities, which was unforeseen at the time of the making of the contract, and thus thereafter, the continuing employment is to be governed by common law principles.

It will then follow that, if the employer can demonstrate that the new position was previously contemplated as part of the initial agreement, logically enough, the originally contracted severance term will stand.

Wallace v TD Bank – An Obiter Benchmark

The B.C. Supreme Court decision in Waddell v Cintas in October of 1997 provides a good review of precedent cases, which are largely fact driven, echoing the same basic theme. Many of the earlier decisions refer to the 1983 Ontario Court of Appeal decision in Wallace v TD Bank, oddly enough, as the words quoted from this decision are strictly obiter as the plaintiff did not plead a substratum argument to avoid the contract in that instance. The words from Wallace which are often cited read as follows:

Certainly there are readily imaginable cases where an employee’s level of responsibility and corresponding status has escalated so significantly during this 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.

This issue was recently considered by the Ontario Court of Appeal. ¹

The common law “changed substratum” doctrine is central to this appeal. 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 where there have been fundamental expansions in the employee’s duties after the employment contract was made, such that the substratum of the employment contract has disappeared or substantially eroded, or it can be implied that the contract could not have been intended to apply to the role ultimately occupied by the employee.

The Court of Appeal looked to the reason trial decision of Perell, J. with approval in which he stated: ²

The changed substratum doctrine is a part of employment law. 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 has significantly changed.

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. [Citations omitted.]

These statements did not add to the existing law. The appellate court did, however, note that the argument made not succeed should the employer prove that the former agreement had been ratified following the revision to the employee's responsibilities. This was noted in a B.C. case cited by the court. ³

Also stated was that the important issue was a substantive change in duties, not one necessarily accompanied by a change in title as was the case in this instance.

An appeal from a finding on this subject is one of mixed fact and law, to which the test is applied of deference, absent an extricable error. ⁴