In the recent Ontario Court of Appeal (ONCA) decision, Celestini v. Shoplogix Inc., 2023 ONCA 131, (“Shoplogix”) the Court confirmed that if an employer substantially changes or expands an employee’s duties and responsibilities, the employer may no longer rely on the employee’s written contract if the contract remains unchanged.
In coming to their decision, the ONCA relied on the substratum doctrine, which indicates that where there are too many changes to an employee’s duties, an unchanged employee contract will have “disappeared or substantially eroded”.
In Shoplogix, the employer dismissed Mr. Celestini without cause. The employer, Shoplogix, took the position that Mr. Celestini’s rights were governed by his employment contract. The contract provided that the employee was entitled to 12 months’ base salary, continued group health insurance and entitlement to a pro-rated annual bonus. The employer argued that Mr. Celestini’s title never changed since starting employment with the company.
Mr. Celestini took the position that the termination provisions in the employment contract were unenforceable. Mr. Celestini argued that the substratum of the contract he signed 12 years prior had substantially eroded, due to the material changes to his duties since he signed his contract.
Shoplogix argued that the substratum doctrine did not apply because Mr. Celestini remained an executive or senior manager. Shoplogix contended that in order to trigger the substratum doctrine there needed to be both a fundamental expansion of Mr. Celestini’s duties, and a promotion – which implies a change in title.
The Court did not accept this argument. The Court stated that the most important aspect of the doctrine was whether there were actual increases, of a fundamental nature, in the duties and the degrees of an employee’s responsibility.
Shoplogix also argued that over the 12 years, the changes to Mr. Celestini’s duties and responsibilities were only incremental and not fundamental. Again, the Court disagreed. Relying on the motion judge’s assessment, Mr. Celestini’s duties and responsibilities “far exceeded any predictable or incremental changes to his role that reasonably would have been expected” when Mr. Celestini started his role in 2005.
In 2008, Shoplogix and Mr. Celestini entered into an Incentive Compensation Agreement (ICA), which provided management-level employees with a new bonus plan. The ICA was a result of restructuring which reduced the number of senior managers at Shoplogix. As a result of the restructuring, Mr. Celestini’s workload responsibilities increased. Mr. Celestini’s new tasks included managing sales and marketing and traveling to pursue international sales opportunities.
The Court concluded that these changes were enough to engage the substratum doctrine rendering the contract void. As such, Mr. Celestini was entitled to 18 months of common law reasonable notice, totalling his damages to $420,000, in addition to the damages he already received pursuant to the 2005 contract.
This decision is a reminder to employers that employment contracts signed at the start of an employment relationship could be rendered void by the end of the relationship. To avoid this risk, before employers hire, promote, provide a salary increase or substantially change an employee’s duties, they should have an employment lawyer revise the contract to ensure that the new contract properly protects the employer from any future claims.