May 31

New Case Exploring How an Employer Can Change a Contract Mid-term

In the Common Law part of the course, we look at the issue of midterm contract modifications (Chapter 10), including a case called Wronko v. Western Inventory.   In Wronko, the employer gave the employee 2 years’ notice that it was unilateral amending the contract to reduce the period of notice required to terminate the contract.   When the employer made the change two years’ later, Wronko quit and successfully sued for constructive dismissal.

In a recent decision called Lancia v. Park Dentistry, a similar set of facts arose, however this time the employer acted properly, learning from Wronko.  You might want to read the decision for educational purpose.  Essentially, the employer wanted to change some terms of the contract, especially the manner in which vacation pay is calculated.

The employer explained to the employee that employment law required that in order to make a change to the contract it had to terminate the contract with notice and then offer a new contract.  So it gave the employee 18 months working notice after which the contract would end.  At that point, it would offer a new contract with some revisions.

The employer also offered the employee a new contract that she could sign anytime within a month.  If she signed that, she was agreeing to terminate the initial contract immediately and she would receive $2000 in consideration for doing so.

The employee chose the latter option.  She signed the new contract and received $2000.  She later sued the employer for wrongful dismissal under the initial contract and argued that the new contract was invalid because she had received no new consideration.  She argued that while she was given a one time $2000 payment, the new contract actually resulted in her losing thousands of dollars.

The court dismissed her argument.  It found that, unlike in Wronko, this employer gave reasonable notice of termination of the initial contract.  However the employee opted instead to agree to terminate the initial contract in exchange for $2000, which is valid consideration.  The judge even said that all is required is a “peppercorn”!   We discussed peppercorns in class last month.  Fantastic.

 


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