Limits agreed to in a contract may no longer apply years later
Is what was fair when you started as a junior employee still fair now that you are a senior employee?
In Canadian employment law, the common law presumes reasonable notice at dismissal, unless the parties have specifically contracted otherwise. But what happens when the parties do originally specifically contract for fixed notice less than reasonable notice, but the employee is dismissed many years later?
In some cases, at the start of employment a contract defines the notice due by the employer to the employee upon termination. Because a typical written notice formula limits notice to something less than reasonable notice, the formula stated in such a commencement contract can become outdated as the employee moves up the ranks.
Typically, a notice-limiting provision in a written commencement contract provides notice at the level of the minimum standards set out in the employment standards legislation of the jurisdiction in question.
In B.C., this legislated minimum provides a formula akin to one week for each year of service, to a maximum of eight weeks. In contrast, common law reasonable notice can in some cases be more than 10 times greater than the legislated minimum standard. This can become a very large disparity in long-term employment.
However, at the start of employment at least, the notice-limiting provision in the contract is probably enforceable for a short time thereafter.
For instance, there would probably be no argument where the employer relied on the notice-limiting provision in the written commencement contract to dismiss an employee of relatively short tenure who occupied a similar position to when he or she started.
But what happens when that same contract is brought out of deep storage at the point of dismissal and used to limit the notice owed to a long-term employee who has had some promotions, and perhaps risen to a management position? It does not seem fair that the original junior-level notice should apply.
Not surprisingly, the courts have treated these two situations very differently.
In the second instance, involving the long-term employee with substantial changes in duties, the courts have ignored notice limitation provisions and awarded common law reasonable notice in its place. The courts have considered such commencement contracts inapplicable to the circumstances, because the entire basis or character of the employment has changed over time.
The case of Wallace v. Toronto Dominion Bank (1983) sets out the principle. The court said that while the limited notice set out in the written contract might have been fair for the first year or two of employment, obviously it wouldn’t have been fair if the employee had remained with the employer long term and moved into more senior positions.
The court said that the notice-limiting provisions of the original employment contract were never intended to apply to a more senior employee. The court went on to say that the entire foundation of the employment had changed from the commencement written contract to become something else, and that it would be unfair to allow the original contract, intended for junior employment, to limit notice to a person who has become a senior employee.
There have been numerous subsequent cases that have followed the principle set out in Wallace to overcome unfair notice-limiting provisions in commencement employment contracts. The dismissed employee in such cases is not bound by the notice-limiting formula in the commencement written contract, and is instead entitled to common law reasonable notice, and for a long-term employee, this can mean a very significant difference between what the commencement contract provided and what they are really entitled to.
The point? Just because there is a commencement contract that limits notice, that does not mean such contract governs the conditions of any dismissal you may be facing. Get legal advice.