Ontario Court of Appeal upholds use of changed substratum doctrine to invalidate ‎termination provision in written employment contract

In Celestini v. Shoplogix Inc. (“Celestini”), the Ontario Court of Appeal upheld the use of the “changed substratum” doctrine to invalidate a termination provision in the written employment contract of a Chief Technology Officer whose workload and responsibilities materially increased over the course of his employment.

In the employment context, the “changed substratum” doctrine provides that where the foundation of a written employment contract has materially changed over time, including as a result of material changes to the employee’s duties and responsibilities, the terms and conditions of that written employment contract should no longer apply. In Celestini, the Ontario Court of Appeal held that “the doctrine recognizes the potential inappropriateness and unfairness of applying the contract’s… provisions to circumstances that were not contemplated at the time of contracting”.

The Celestini decision provides significant takeaways for employers, including:

• If the terms and conditions of an employee’s employment (e.g. duties, responsibilities, compensation, etc.) have materially changed since the employee signed a written employment contract, that written employment contract may no longer be enforceable.
• If there are material changes to the terms and conditions of an employee’s employment, consideration should be given to requiring the employee to sign a new written employment contract, or alternatively, a written acknowledgement confirming that the employee remains bound by the terms and conditions of the previous written employment contract.
• Written employment contracts should include a term which confirms that the terms and conditions therein will continue to apply throughout the employment relationship notwithstanding any changes to the terms and conditions of employment. In Celestini, the Ontario Court of Appeal specifically noted that such a term may have “averted the application” of the “changed substratum” doctrine.

If you have any questions regarding the “changed substratum” doctrine or the enforceability of your employment contracts, please contact any member of our DLA Piper Canadian Employment Law Group.