In Ling v. Unity Builders, the Alberta Court of Queen’s Bench held that, when there has been a significant change to the nature of a person’s employment, a contract entered into before the change will cease to govern, and the termination of the employee will accordingly be governed by common law principles.
Ling entered into an employment contract for the position of General Manager with a house building company that operated within a group of companies. The contract provided for a bonus worth five percent of the company’s net income, and for termination at any time with two months’ notice. Eventually, Ling became General Manager of two more companies in the group, and received a bonus of ten percent from each company. However, no written agreement was entered into to reflect these changes. Finally, Ling was promoted to President of the three companies, received a salary increase, and began to receive his pay from the companies’ management company, and not from the company that had originally employed him. At no point did Ling receive a new employment contract, despite his request for one.
A dispute arose and Ling was terminated without cause. He received three months’ salary in lieu of notice. Ling subsequently commenced a wrongful dismissal action.
The Alberta Court of Queen’s Bench allowed Ling’s action. The Court reasoned that privity of contract existed between Ling and his original employer. However, at the time of Ling’s dismissal, he was not employed by his original employer, but rather by the group of companies. Therefore, the contract initially entered into was no longer enforceable at the time of Ling’s termination. Since no contract was in place, his termination was governed by the common law.
The Court awarded Ling four months’ notice. The Court based its conclusion on the fact that he was fifty years old at the time of trial and had been in an upper management position notwithstanding that his employment had been of relatively short duration and that, for over half of this employment, his entitlement to notice had been limited to two months.
This decision highlights for employers the importance of having an employee sign a new employment contract whenever there has been a promotion or other change in position. If the employer fails to do so, the employee’s entitlement to notice on termination may not be limited by the terms of the original contract, and may instead be determined by the common law.