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One of the benefits of a written employment contract is that it provides both parties with certainty in terms of their respective entitlements.

Thus, when and if termination occurs, both the employer and the employee can look to any written employment contract to determine the employee's entitlements. Assuming the employment contract complies with the minimum requirements of the Employment Standards Act, the contract will generally govern the employee's entitlements at termination.

However, a recent Ontario Court of Appeal decision seems to indicate that a contract can “disappear” and thus make the provisions of a contract unenforceable. Conversely, a recent decision of the Ontario Superior Court of Justice seems to indicate that provisions of an older contract can "reappear" if a new contract does not expressly supersede it.

Contract disappears

In Irrcher v. MI Development Inc., [2003] O.J. No. 4037, the court of appeal upheld the decision of the trial judge that a 1990 written contract did not apply to an employee at the time of his termination because "the substratum of the written contract had disappeared." The court of appeal's decision contains no facts. It is necessary to look at the trial judge's decision to get a better indication of what actually occurred and why the court of appeal upheld the trial judge's decision.

In 1986, Irrcher started work with an affiliate of MI Development as a corporate engineer pursuant to a written contract. Subsequently, Irrcher moved on to a related company to supervise a factory plant under the terms of a second employment contract.

After that subsidiary was sold, Irrcher moved back to MI Development to be a construction engineer, and then later a general manager. Irrcher signed a third employment contract with the defendant in August 1990. The 1990 contract contained a termination provision calling for six months' notice.

Over the years Irrcher was given more and more responsibilities and his remuneration changed accordingly. Ultimately, the trial judge found that there was a fundamental change in the nature of Irrcher's job. As a result, the trial judge found as a fact that by the year 2000, the substratum of the 1990 contract had disappeared. Consequently, Irrcher was awarded 18 months' notice. The trial judge ruled that it should be implied that the 1990 contract could not have been intended to apply to the position Irrcher ultimately occupied.

On appeal, the court of appeal supported the trial judge’s conclusion that the substratum of the 1990 contract had disappeared given the findings of fact that Irrcher's responsibilities were dramatically different from when he signed the 1990 contract, his remuneration was greater and the method of calculation had changed, and his title was different. Thus, in effect, Irrcher's contract had disappeared and he was entitled to reasonable notice.

Contract reappears

In contrast is the recent decision of the Superior Court in Allen v. Bosley Real Estate Ltd., [2003] O.J. No. 3971. In this case, Bosley Real Estate had employed the plaintiff Allen since August 1995 and required Allen to sign a number of employment contracts during his employment. Allen signed three of these contracts, dated Aug. 1, 1995, May 28, 1996, and May 15, 1997, respectively. Each contract contained a termination clause that required Allen to be given 30 days' notice of termination for each full year of employment with Bosley. The contracts each adjusted Allen’s remuneration.

On March 1, 2000, Allen signed another handwritten document. Unlike the previous documents, it contained no provision regarding termination but did adjust his remuneration to a guarantee of $120,000 (base plus bonus). On Feb. 21, 2002, Bosley gave Allen 60 days' notice of termination in writing followed by a payment of $40,000 (the equivalent of four months' payment in lieu of notice).

One of the issues at trial was whether the termination clause that was contained in the first three contracts continued to apply despite its absence in the March 1, 2000, contract. The court found that the termination provisions in the 1997 contract continued to apply.

The court came to this conclusion on the grounds that since the 2000 contract was silent as to termination and there was no new agreement on a termination provision between the parties, the termination provisions of the 1997 contract continued to govern. The court reasoned that since there was nothing in the 2000 contract that said it was intended to supersede the 1997 contract, the 2000 contract should be limited to its contents, in this case remuneration.

The court went on to conclude that the terms of the 1997 contract were reasonable or not “so onerous or blatantly unfair as to warrant judicial intervention.” Ultimately, the court awarded Allen six months’ pay, less the $40,000 received.

It is difficult to reconcile the decisions in these two cases, and little analysis is provided to support the conclusions reached. It is not clear when there will be a sufficient enough change in an employment relationship to warrant an older contract being made unenforceable. Similarly, must a new employment contract with different terms expressly supersede a prior existing one to prevent a reappearance of the old contract?

At a minimum, these two decisions would seem to indicate that greater judicial attention is required to determine when an old employment contract will continue to be enforceable in light of changes in the employment relationship or the entering into of new employment contract. Until such time, both employees and employers will be well advised to be cautious when entering into new employment contracts and to turn their minds today as to how they would like to address future changes in the employment relationship. Otherwise, surprises are bound to occur.

Steve Levitt practises employment law with Nelligan O'Brien Payne LLP, a full-service firm, in Ottawa.

[This article is reprinted with permission and first appeared in the February 2004 issue of The Lawyers Weekly.]

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2021 Nelligan O’Brien Payne LLP.

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