Employment law has numerous terms or concepts that are not self-explanatory to lay people. Constructive dismissal and mitigation efforts are a couple of examples of this. Unless you are an employment lawyer, their meanings are not immediately obvious.
There are also some obscure terms or concepts that can be foreign even to employment lawyers. The changed substratum doctrine is one of them.
When I first came across this employment law doctrine years ago, it sounded to me like a branch of metaphysical philosophy from my undergraduate days. In reality though, changed substratum is nowhere near that abstract or complex.
Case law tells us that this doctrine applies “where there have been fundamental expansions in the employee’s duties after the employment contract was made, such that the substratum of the employment contract has disappeared or substantially eroded, or it can be implied that the contract could not have been intended to apply to the role ultimately occupied by the employee.”
Think of the substratum of an employment contract as the underlying foundational terms that make up a job’s duties and responsibilities. Over time, an employee’s duties can change so drastically that the job is no longer reflects the terms set out in the employment contract. This doctrine was the focus of the Court of Appeal’s decision in Celestini v. Shoplogix Inc., 2023 ONCA 131 from which the above-noted quote is derived.
In this case, the employee co-founded the employer company in 2002 and originally served as its CEO. In 2005, the employee stepped down as CEO and became the Chief Technology Officer instead. At that time, he signed an employment contract that provided that he would receive payment of 12 months of base salary and benefits continuation, plus a pro-rated bonus, upon termination without cause.
In 2017, twelve years later, the company was acquired via a share purchase and the employee was dismissed on the same day, receiving the payments mentioned above. The employee subsequently sued for wrongful dismissal, relying upon the changed substratum doctrine, and brought a motion for summary judgment thereafter.
The motion judge granted judgment in favour of the employee, finding that the employee’s duties expanded considerably over the course of his employment and that his new responsibilities were “substantial and far exceeded any predictable or incremental changes to his role that reasonably would have been expected when he started as CTO in 2005.” The company appealed this decision.
On appeal, the Court of Appeal upheld the motion judge’s decision. In his reasons, Zarnett J.A. restated the doctrine as follows:
The changed substratum doctrine operates as a limit on when an employee’s common law entitlements will be restricted by the express terms of a historical written contract. Given that an employer-employee relationship may evolve in a fundamental way after the written contract was made, the doctrine recognizes the potential inappropriateness and unfairness of applying the contract’s termination provisions to circumstances that were not contemplated at the time of contracting. (Emphasis added)
The Court of Appeal rejected the company’s submissions that the doctrine should not apply because the employee’s title did not change and his responsibilities had not increased to a sufficient degree. In reaching this conclusion, Zarnett J.A. cited the above-noted excerpt from the motion judge’s reasons.
A key take-away from this decision for employers is that it is prudent to re-visit employment contracts from time to time to ensure that the employee’s actual duties and responsibilities reflect what is stated on paper. An annual performance review is an opportune time for this exercise. If the employee is entitled to a promotion, it makes good sense to update the written terms of employment. Certainly, as this case demonstrates, doing so can reduce the risk of litigation down the road.
This article is intended only to provide general information and does not constitute legal advice. Should you require advice specific to your situation, please feel free to contact me to discuss the matter further.