Employment Contracts

The Change was Contemplated

The foundation of a substratum argument is the change in the terms of the employment relationship was unexpected. The corollary then will be that this plea cannot succeed when the reverse is true.

In Waddell, the court rejected the plaintiff’s substratum submission due to the fact that the agreement did not on its face describe the employment as being specific to the actual position to which the plaintiff was originally hired. Indeed, the opposite was stated in the hiring agreement.

The Court also concluded that the plaintiff was verbally told that he would be later promoted to the position in Vancouver which he held on termination.

The plaintiff had been promoted and sent from Toronto to Vancouver as General Manager. There was evidence, however as noted, that this was a move contemplated at the time of hiring and for this reason and others, the argument failed.

[47] In the case at bar, however, the Employment Agreement did not make specific reference to the plaintiff’s position as District Sales Manager for southwestern Ontario and there was no indication that the Employment Agreement was specific to that position. To the contrary, the Employment Agreement might be seen as contemplating the plaintiff’s transfer and altering of duties. The defendants argue that this illustrates that the Employment Agreement was intended to apply to the position in the company that the plaintiff ultimately occupied in Vancouver. Indeed, there is no evidence that a new employment agreement was in the contemplation of the parties, as was the case in O’Shaughnessy. On the other hand, there is clear evidence that a new compensation package (which was outside the scope of the Employment Agreement) was contemplated by and eventually negotiated by the parties, to be effective upon the plaintiff’s transfer to Vancouver. 1

The same reasoning followed in Hine v Susan Shoe, which is referenced in the Waddell decision. The event which gave rise to the substratum argument had been contemplated at the time of the execution of the contract.

[49] In Hine, the plaintiff was first employed by the defendant in 1964 as assistant to the president. Four years later he was appointed vice-president of operations and retained that title for 20 years. The court found that the employment contract entered into in 1964 was still enforceable after 24 years of employment. The court stated at p. 447:

I must therefore conclude that there is insufficient evidence of such fundamental change to enable me to say that the substratum of the original contract had disappeared. The contract entered into by the parties in 1964 contemplated the reduction in costs and the increase in output so as to increase profits, and provided for the plaintiff to share in those increased profits. He was raised from assistant to the president to the vice-president of operations in contemplation of the contract.

The reference to the Ontario Court of Appeal’s finding in Wallace v TD Bank, as shown in Waddell is not correct. There was no pleading to this effect and this issue was not before the court in Wallace. 2

Elsewhere in the Waddell decision, the title of the plaintiff in Ontario is shown as Director of Sales and in B.C. that of Director of Sales and Marketing. This may a nitpicky observation, as the point being made is that the eventual position to which he was assigned was one contemplated at the time of the execution of the contract.

[52] In the case at bar, the plaintiff’s original position in Ontario was Director of Sales. He was responsible for managing six sales consultants and one administrator, developing the company’s client base in south-western Ontario, employee training, product development, and customer service. When the plaintiff became the Director of Sales and Marketing in British Columbia, he was responsible for establishing a sales office in the Lower Mainland, for managing sales and marketing in the province, and for managing eight employees. His annual base salary increased by $19,000 and he was provided with a more attractive commission plan.

[53] Based on these facts, I am not satisfied that the plaintiff’s position changed so significantly that the Employment Agreement could not have been intended to apply to the position that the plaintiff ultimately occupied. In arriving at this conclusion I bear in mind the fact that the Employment Agreement was executed by the plaintiff with the knowledge that he might be transferred and that his duties might change as a result.

The same conclusion was reached in Wernicke v Altrom. The B.C. Supreme Court concluded again that the parties contemplated that the employment agreement intended that its terms would accompany the plaintiff to the new position.

[62]           Mr. Wernicke’s circumstances are very far removed from those described in Dolden.  Mr. Wernicke was not presented with the equivalent of an ultimatum concerning the Letter Agreement.  Instead of “sign or be out of a job,” Mr. Wernicke was in a position to negotiate terms, which he did, and take legal advice concerning the terms of employment being offered to him.  The Letter Agreement expressly reserved to the employer “the right to require you to assume additional new and varied duties in the capacity of Controller or to alter your reporting relationships in future.”  Mr. Wernicke expressly agreed that any changes in that regard would not affect or change any other part of the Letter Agreement.

[63]           In my view, the change in his nominal role – from controller to Chief Financial Officer – was not a fundamental change either in the nature of what he was hired to do per the Letter Agreement (“be responsible for the entire accounting and financial function”) or in what in fact he had been doing, which involved both finance and operations matters.  There were no changes to the terms and conditions of Mr. Wernicke’s employment effective January 1, 2000 (including no change to his remuneration), other than the change in title.  The change in title occurred because Mr. Litscher wanted to recognize and show his appreciation for the work Mr. Wernicke had been doing.

[64]           Mr. Wernicke’s evidence was that before he became Chief Financial Officer, he was involved in finance and operations, and he was involved in finance and operations afterward, although more so.  This, in my view, simply reflects the normal evolution of a professional’s job.  Mr. Wernicke expected when he joined the Altrom Group to have opportunities to advance within the company, and when he signed the Letter Agreement, he had in mind the long-term possibilities.  I consider this evidence to be inconsistent with an intention that the Letter Agreement would have to be renegotiated in the circumstances that occurred when Mr. Wernicke became Chief Financial Officer.  Despite the change in title, Mr. Wernicke understood that the Letter Agreement was still effective and binding.

To the same effect is the Ontario Court of Appeal decision in 2023. 3