Substratum of the Employment Contract Alive and Well
Absent a legally enforceable employment contract dealing with entitlement on termination, an employer may only terminate an employee employed on an indefinite term for just cause or on reasonable notice or pay in lieu of such notice. See for example, Machtinger v. HOJ Industries Ltd.,  1 S.C.R. 986.
When terminating an employee it is always important to determine whether the employee is subject to a written employment contract. But that will not necessarily end the discussion where the employment circumstances of the employee have overtaken the contract such that the termination provision in the contract can no longer be relied upon. The plaintiff would argue that the substratum of the contract has been eliminated such that the employer can’t rely on the termination provision to avoid providing common law reasonable notice.
Such was the argument in the recent case of MacGregor v. National Home Services where the court had before it summary judgment motion by the employer (defendant). The Court noted:
The changed substratum doctrine is a part of employment law. The doctrine provides that if an employee enters into an employment contract that specifies the notice period for a dismissal, the contractual notice period is not enforceable if over the course of employment, the important terms of the agreement concerning the employee’s responsibilities and status has significantly changed. See: Rasanen v. Lisle-Metrix Ltd. 2002 CanLII 49611 (ON SC), (2001), 17 C.C.E.L. (3d) 134 (S.C.J.), aff’d (2204), 33 C.C.E.L. (3d) 47; Toronto Dominion Bank v. Wallace 1998 CanLII 4150 (ON CA), (1983), 41 O.R. (3d) 161 (C.A.); Collins v. Kappele, Wright & MacLeod Ltd. (1983) 3 C.C.E.L. 228 (Ont. Co. Ct.), aff’d (1983) 3 C.C.E.L. 240 (C.A.).
The idea behind the changed substratum doctrine is that with promotions and greater attendant responsibilities, the substratum of the original employment contract has changed, and the notice provisions in the original employment contract should be nullified.
Although the plaintiff did not plead that the substratum of the contract had been eroded, the Court viewed this as a “technicality” and it took a very broad and liberal view of the pleadings suggesting that “practically speaking, he did plead to the Statement of Defence in replying to the summary judgment motion. Thus, I do not agree with National’s argument that Mr. McGregor is precluded from relying on the changed substratum argument.” The Court also noted that it “is a mystery to me why Mr. MacGregor did not cross-examine National’s representative or provide more or better evidence about his alleged promotions”. Notwithstanding all of this, the Court dismissed the summary judgment motion and held that the matter should proceed to trial.
Employers must be alive to the substratum argument and take steps during the employment relationship to address it. Periodically updating employment contracts when the employee is promoted is something the employer should consider as part of its normal employment practices.