Introduction

This article contains key updates for employers on the Ontario Court of Appeal’s recent decision in the case of Celestini v. Shoplogix Inc., Ontario’s Paid Infectious Disease Emergency Leave and the newly introduced Working for Workers Act, 2023. Read about each matter in detail below.

Ontario Court of Appeal Denies Enforceability of Employment Contract Due to Change in Employee’s Duties

Employers are a hardy bunch. Despite numerous setbacks before the courts with respect to enforceability of termination provisions in employment agreements (which both parties generally assumed would be enforceable), employers have vigilantly heeded the advice of their counsel and amended their employment agreements accordingly. In fact, the drafting and re-drafting of employment agreements has created a kind of “micro industry” for employment lawyers over the last few years.

So, what is next in this delicate dance between employers and the courts? The recent case of Celestini v. Shoplogix Inc., which was ultimately decided by the Ontario Court of Appeal, addresses the enforceability of termination language where an employment agreement no longer reflects the current duties of an employee.

We have outlined the facts in detail below, but (spoiler alert) the Ontario Court of Appeal held that where over the course of the employment relationship an employee has received significant changes to their status and responsibilities, such that the “foundations of the original employment agreement” cannot be said to still exist, then that agreement no longer reflects the true nature of an employee’s position (at law, referenced as the “changed substratum” doctrine) and the termination provisions of the employment agreement may be unenforceable.

Background

In 2005, the plaintiff, Stefano Celestini, began working as chief technology officer (“CTO”) of Shoplogix under the terms of an employment agreement which provided that he would perform the duties of the CTO and “any other duties that may reasonably be assigned to him by the CEO or the Board.” It also included a termination provision which included 12 months of pay in the event Shoplogix terminated Mr. Celestini without cause (the “2005 Contract”).

Shoplogix hired a new CEO in 2008 and implemented a series of changes for its senior management. For Mr. Celestini, this included signing a new Incentive Compensation Agreement (the “ICA”) and adding several new responsibilities to his position as CTO. Notably, the ICA did not acknowledge the 2005 Contract or confirm its continued applicability, despite the significant changes in compensation.

In 2017, Shoplogix terminated Mr. Celestini without cause and sought to provide him with the termination notice entitlements under the 2005 Contract. Mr. Celestini sued Shoplogix for wrongful dismissal and alleged that the 2005 Contract was unenforceable based on the doctrine of changed substratum.

Summary Judgment Motion

Shoplogix argued that notwithstanding the changes in Mr. Celestini’s responsibilities, the terms of the 2005 Contract provided that he was responsible for “any other duties” assigned to him by the CEO or the Board. It also took the position that, despite the changes during Mr. Celestini’s employment, his title had remained the same and there was therefore no change in his responsibility or status.

The motion judge rejected both of these arguments as (1) the 2005 Contract did not expressly confirm that it would continue to apply, despite changes in Mr. Celestini’s responsibilities, and (2) that title alone was not determinative and the changes to Mr. Celestini’s compensation and duties substantially altered the course of his employment to a degree which could not have been foreseen at the time of signing the 2005 Contract. As such, the substratum of the 2005 Contract was no longer applicable, and its termination provisions were invalidated.

As a result, the motion judge was left with determining the appropriate common law reasonable notice for Mr. Celestini, which was determined to be 18 months, less the pro-rated bonus paid at termination, car allowance and lost life insurance benefits for a total award of $421,043.05.

Court of Appeal

The Ontario Court of Appeal confirmed the findings of the motion judge, specifically that the language of the 2005 Contract possessed a fatal omission in failing to specify the agreement would continue despite any changes to Mr. Celestini’s duties. The Court held that a written employment contract is one of the few ways to oust the application of the “changed substratum doctrine,” but only if the agreement specifically states that its provisions will continue to apply if an employee’s duties change during the employment relationship.

Next, the Court addressed Shoplogix’s argument that, despite Mr. Celestini taking on additional responsibilities and having a change in his compensation structure, he was still a CTO and had received no formal promotion. The Court found that the question of whether an employee’s responsibilities have changed so significantly that the doctrine of changed substratum ought to apply is one of substance, not form. Accordingly, the most important consideration in applying the doctrine is “whether there were actual increases, of a fundamental nature, in the duties and degree of responsibility of the employee.” Further, the Court agreed with the motion judge that while title is one consideration in determining whether there has been a significant change, it is not determinative and must be considered in the entire context of the employment relationship when determining whether to apply the doctrine. Based on this interpretation, the Court held that the 2005 Contract was unenforceable.

The Court therefore dismissed Shoplogix’s appeal and allowed Mr. Celestini’s cross-appeal for an increased amount of $37,188.61 with respect to quantum of bonus, in addition to amounts already awarded by the motion judge.

Key Considerations

Employers reviewing the facts of this case will likely have a feeling of dread, as they may very well have employees in identical situations. However, there are some simple takeaways which can assist in addressing the issue raised by the Shoplogix case:

1. Understand the age and content of your organization’s employment agreements. Are there employees who have not had a new or updated agreement in some time? Have their duties and responsibilities significantly changed?
2. Take action where necessary to amend any old or unenforceable employment agreements (or create new employment agreements) not only to ensure enforceability, but to address any changes necessary.
3. Remember that changing an employee’s employment agreement or introducing a new agreement once they are working requires sufficient “consideration” for it to be enforceable. This can come in the form of a raise, promotion, entitlement to equity or bonus, etc. 
4. Include language which specifically addresses changes and deals with the totality of the employee’s employment.

One thing is certain: the employment law landscape is constantly changing. An employer’s best defence is eternal vigilance. A strong human resource protocol for the review of employment agreements, with the assistance of legal counsel, is the best way for employers to not only keep current, but avoid an issue of enforceability in the future.

Paid Infectious Disease Emergency Leave (“Paid IDEL”) Expired on March 31, 2023

Until March 31, 2023, Paid IDEL was a form of paid leave available under Ontario’s Employment Standards Act, 2000 (the “ESA”) for employees unable to work for reasons related to COVID-19. Eligible employees were entitled to a maximum of three days of Paid IDEL (subject to entitlement to paid leave already provided by an employer), with reimbursement of up to $200 per day for employers administered by the Workplace Safety and Insurance Board.

Employers continue to be able to make claims for reimbursement for any Paid IDEL days taken by employees prior to March 31, 2023. Further, unpaid IDEL is still in place and will continue to be so for as long as COVID-19 remains designated as an “infectious disease” by virtue of O. Reg. 228/20. As such, employees are still entitled to statutorily protected leave when they are unable to work for broad reasons related to COVID-19.

Ontario Introduces Working for Workers Act, 2023

On March 20, 2023, the Ontario government introduced a new bill titled the Working for Workers Act, 2023, which proposes several amendments to the ESA and the Occupational Health and Safety Act (the “OHSA”). The Working for Workers Act, 2023 follows a string of updates to employment legislation under a similar name in the last number of years. The following are some of the key changes that employers should be aware of, if the bill is passed:

1. The inclusion of employees who work remotely in the count for mass termination provisions of the ESA, to ensure that remote employees receive the same minimum notice of termination or pay in lieu as in-office colleagues in the event of mass termination (i.e., where an employer terminates 50 or more employees within a prescribed period). Given that employees are counted by virtue of their “establishment” of work, a change in the definition of “establishment” provides more certainty for remote workers of being included in such a count.
2. Regulatory changes to require employers to provide employees with information about their job (e.g., pay, work location and hours of work), as well as the date by which that information needs to be provided (e.g., before their first shift).
3. Establishment of the highest maximum fines in Canada for those who are convicted of taking possession of or retaining a foreign national’s passport or work permit.
4. An increase to the maximum fine that could be imposed on a corporation convicted of an offence under the OHSA from $1.5 million to $2 million (the highest maximum corporate fines under occupational health and safety legislation in Canada).
5. Allowing reservists job-protected leave when they are deployed to emergency operations inside Canada immediately upon commencing employment, reducing the length of employment required for all other reasons from the recently introduced three months to two months, and expanding the reasons for taking reservist leave to include time off for recovery from physical or mental injuries.
6. Ensuring that women working in skilled trades have access to at least one women’s-only washroom on jobsites and properly fitting equipment such as uniforms, boots and safety harnesses.

Aird & Berlis will continue to monitor any developments with respect to this bill. Do not hesitate to reach out to a member of the Workplace Law Group with any questions.