Earlier this year, the Ontario Court of Appeal released its decision in Celestini v. Shoplogix Inc., 2023 ONCA 131. In that case, the Court of Appeal upheld the “changed substratum doctrine” to invalidate the termination provision in an employment contract. The “changed substratum doctrine” essentially means that if an employee’s duties and responsibilities have substantially changed since the employment contract was signed, the employment contract is invalid as it no longer regulates the nature of the worker’s employment.
To help further explain the changed substratum doctrine, it is helpful to look at how the Ontario Court of Appeal applied it to the facts in Celestini v. Shoplogix Inc. In that case, Stefano Celestini signed a contract in 2005 to be Shoplogix’s Chief Technology Officer (CTO). The contract limited the amount of notice that he was entitled to upon termination. In 2008, Celestini’s work started to change, with him agreeing to the implementation of an Incentive Compensation Agreement (ICA), which was a new bonus plan that substantially increased his compensation. Along with the ICA, the size of the upper management team was drastically reduced, which resulted in Celestini taking on a substantially increased workload and responsibilities. In 2017, Celestini was dismissed without cause and Shoplogix tried to apply the limited pay in lieu of notice that was in Celestini’s 2005 employment contract. Celestini argued that the changed substratum doctrine made the contract invalid, entitling him to common law notice.
The motion judge and the three judges of the Ontario Court of Appeal agreed with Celestini. The Court of Appeal found that the changed substratum doctrine applied based on the substantial changes to Celestini’s work in 2008, compared to what was initially envisioned when Celestini signed the 2005 employment contract. Shoplogix tried to argue that the changed substratum doctrine can only be used when an employee gets promoted. The Court of Appeal rejected this argument and said when there is a fundamental expansion of the employee’s duties, the changed substratum doctrine applies, it does not matter whether the employee’s title changed. Therefore, the Court of Appeal upheld Celestini’s entitlement to 18 months of common law notice.
Takeaways for Employers
This decision is a good reminder to employers that an employment contract entered into at the start of an employment relationship may not be valid at the end of the employment relationship. If an employee’s duties and responsibilities have substantially changed, the contract may no longer be valid.
If an employer is hoping to promote or substantially increase the salary of an employee, they should get the employee to sign a new contract that reflects their new working conditions. When a new contract is getting signed, the employer must give additional consideration, which could be an increase in salary or bonuses, which are often offered as part of a promotion.
How Suzanne Desrosiers Professional Corporation can help
If you are concerned that one of your employee’s contracts no longer represents their current job duties, violating the changed substratum doctrine, we can help. Our employment lawyers can help you update your employment contracts in a way that reflects the employee’s current duties. To speak to one of our employment lawyers, you can call us at 705-268-6492 or email us at info@sdlawtimmins.com.