The Wronko Decision: Advance Notice of Changes or Termination?

By Jeremy D. Schwartz

Should the courts recognize an implied right for employers to unilaterally alter fundamental terms on reasonable notice?  Put another way, should the common law develop to encourage employers to give employees advance notice of significant changes, or should it require the existing employment be terminated?

Like two ships passing in the night, the Supreme Court of Canada and the Ontario Court of Appeal recently made two watershed decisions that may set an interesting course for employment law in the years to come, respectively: Evans v. Teamsters Local Union No. 31 (“Evans”), and Wronko v. Western Inventory Service Inc. (“Wronko”). 

In Evans, the Supreme Court of Canada held an employee had an obligation to mitigate wrongful dismissal damages by accepting re-employment with the terminating employer, provided it was objectively reasonable for him to do so.  Evans has affirmed that the duty to mitigate is alive and well in contracts of employment, albeit modified to address their special nature as distinct from ordinary commercial contracts. 

In Wronko, the Ontario Court of Appeal held that Western constructively dismissed Wronko when it substantially reduced a severance provision in his contract, though Western gave him two years’ advance notice of the change.  The court made it clear that Wronko could not be said to have consented to the impending changes solely by continuing to work in the interim, especially since he restated his objections on numerous occasions.  The court relied heavily (as did Western in its statement of defence) on the fact Western did not specifically give Wronko notice of termination when it gave him two years’ notice of the change. 

Perhaps more interestingly, the court implicitly found the two years’ advance notice Wronko received had no impact on his damages claim.  Since it awarded him 24 months’ pay in lieu of notice, in effect Wronko received 48 months’ notice of the termination of his employment. 

Strictly speaking, this finding in Wronko is consistent with the classic approach to the law of anticipatory breach.  Generally under that approach, upon notice by one party (the “promissor”) that it does not intend to fulfill a fundamental term of the contract at some future point, the promissee may immediately treat the contract as terminated and seek damages, subject to the duty to mitigate; or, he may sit on his rights, continue to fulfill his obligations under the contract, and seek damages once the time for performance arrives and the promissor fails to perform.  See generally, G.H.L. Fridman, “The Law of Contract in Canada,” 5th ed. (Toronto: Thomson Canada Limited, 2006). 

Apparently Wronko’s objections were insufficient to trigger an end to the contract and a corresponding duty on Wronko to mitigate.  Applied strictly to employment contracts, as the doctrine of anticipatory breach apparently was in Wronko, employers may have to give objecting employees notices of termination and offers of re-engagement under the desired new terms, or else risk employees obtaining ‘double-recovery’ of notice simply by sitting on their rights and claiming constructive dismissal when the new terms come into effect. 

In Farber c. Royal Trust Co., [1997] 1 S.C.R. 846 (“Farber”), which gives the current authoritative definition of constructive dismissal, the Supreme Court of Canada adopted the following statement: “A constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee.” (Paragraph 34, emphasis added) See also Kussmann v. AT & T Capital Canada Inc., 2002 BCCA 281 at paragraph 20, and Wilde v. Archean Energy Ltd., 2007 ABCA 385 at paragraph 107.

In Fellowes-Strike v. Co-operators Group Ltd., [1998] O.J. No. 1714 (Gen. Div.) (“Fellows”), Justice Robert N. Weekes found as follows at paragraphs 16-17:

A fundamental change that is accompanied by reasonable notice is not constructive dismissal…This is how it should be. An employer should not be punished for giving as much advance notice as it can to its employees of impending changes. Such notice gives an employee more opportunity to adapt or to structure his or her affairs to best advantage and is to be encouraged. 

Parallels may be drawn between Justice Weekes’s findings and paragraph 29 in Evans, where the Supreme Court affirmed that employers should be encouraged to give working notice (of termination), and found it “nonsensical” to apply different principles to working notice as opposed to mitigation. 

Fellows has garnered criticism for being inconsistent with traditional contract doctrine, and was distinguished and not followed in Wronko (footnote 5).  What then is the meaning of the words in Farber, “without providing reasonable notice…”? Have the courts now read in the phrase ‘…of termination of employment,’ or was that always the intended meaning? 

The employer in Wronko did not seek leave to appeal at the Supreme Court of Canada.  Perhaps in the future the country's top court will have an opportunity to provide further guidance on the interrelationship in employment law between the doctrines of anticipatory breach, constructive dismissal and mitigation.

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