In LaPlume v. AAA Internet Publishing Inc., the Supreme Court of British Columbia revisited the “changed substratum” doctrine and upheld termination provisions of a nine-year-old employment contract. The Court rejected the employee’s argument that his role had changed so significantly that the original employment contract was no longer enforceable.
The “changed substratum” doctrine recognizes that enforcing contractual terms agreed to at the beginning of an employment relationship may be unfair if the employment relationship has fundamentally changed over time. In such circumstances, the court may hold that the “substratum” of an employment contract has disappeared or eroded and that its terms are no longer enforceable.
Background
Mr. LaPlume began working for AAA Internet Publishing Inc. in 2013. After a brief period as an independent contractor, he accepted a job as a junior developer and entered into an employment contract limiting his without-cause termination entitlement to a maximum of 16 weeks’ notice or pay in lieu.
The contract also contained a term allowing the employer to change Mr. LaPlume’s position, title, duties, responsibilities or reporting relationship provided such changes do not materially increase his work duties or hours of work.
Over the next nine and a half years, Mr. LaPlume received annual salary increases and was promoted to manager of the games team and later to operations manager. Although he assumed managerial responsibilities, he retained his prior duties and continued to report to the same supervisor.
In 2023, the employer terminated Mr. LaPlume’s employment without cause, and he was provided 16 weeks’ pay in lieu of notice in accordance with the terms of his employment contract.
The Court’s Analysis
The Court held that changes to an employment relationship must be significant to erode the substratum of an employment contract. Incremental and predictable changes in the employment relationship are expected over time and are insufficient to render an employment contract unenforceable.
As an example of a significant change that eroded the substratum of an employment contract, the Court referenced its earlier decision in Schmidt v. AMEC Earth & Environment et al. In that case, the employee commenced employment in 1975 as a geotechnical engineer performing billable work and, 26 years later, he was managing 10 offices across British Columbia with gross revenue exceeding C$8-million. His role had significantly evolved from billable engineering work to managing the company.
The Court also provided the following framework:
a) Significant changes in employment can render an employment contract unenforceable by the time of termination of employment where:
(i) The substratum of the employment contract entered into at the time of hiring may have disappeared by the time of termination of employment;
(ii) It may be implied that the contract could not have been intended to apply to the position ultimately occupied by the time of termination of employment.
b) Not all changes in employment benefits, duties and responsibilities are sufficient to erode the substratum of an employment contract.
c) To erode the substratum of an employment contract, a change must be dramatic and fundamental; incremental and predictable changes in the terms of employment are an insufficient basis on which to conclude that an employment contract is unenforceable.
d) Where an employment contract anticipates and permits changes in employment, the change required to erode the substratum of the contract must be beyond what was anticipated and permitted.
Applying these principles, the Court concluded that the changes in Mr. LaPlume’s employment relationship were incremental and consistent with normal career progression. His core duties, reporting relationship, hours and work location remained unchanged. The Court also noted that the employment contract expressly contemplated changes to his role over time.
Accordingly, the termination provision was held enforceable.
Key Takeaways
To succeed with a changed substratum argument, an employee must demonstrate a significant and fundamental change that was not contemplated when the employment contract was signed. Minor or incremental changes are insufficient.
Whether the substratum of an employment contract has changed is a fact-specific inquiry. Employers must include clear and express language in employment contracts confirming that the terms of the contract continue to apply in the event of a change in the employee’s position, responsibilities, compensation or reporting structure.
Employers must also periodically review their employment agreements to ensure that the agreements reflect the parties’ intentions and that they are enforceable, particularly when an employee is promoted or there is a substantial change.
While the changed substratum doctrine is one basis to challenge enforceability, there are other grounds to challenge an employment contract’s enforceability, such as lack of consideration, statutory non-compliance or repudiation of the agreement.
For more information regarding this decision or employment agreements generally, please contact our Employment & Labour group.
