The Ontario Court of Appeal (ONCA) made a significant ruling in Celestini v Shoplogix Inc., 2023 ONCA 131, stating that when an employer significantly increases an employee's responsibilities and obligations, the written contract may no longer be valid, even if the employee's job title remains the same. This decision emphasizes the importance of reviewing and revising employment contracts in the context of changes to an employee's job duties and responsibilities.
In Celestini v Shoplogix Inc., Mr. Celestini held the position of Chief Technology Officer at Shoplogix. In 2005, he signed a written contract that restricted his entitlements in case of dismissal without cause. However, in 2008, Mr. Celestini signed an Incentive Compensation Agreement that substantially altered his compensation, increased his workload, and expanded his responsibilities. This change in the terms of his employment became the subject of the case before the ONCA.
In 2017, Mr. Celestini initiated legal proceedings against Shoplogix for wrongful dismissal. The ONCA ruled in his favor, applying the "changed substratum" doctrine, which recognizes the unfairness of holding an employee to a contract when the circumstances have fundamentally changed. The court found that the 2005 employment contract, which limited Mr. Celestini's entitlements upon dismissal without cause, had been rendered obsolete by the significant expansions to his responsibilities and workload resulting from the 2008 Incentive Compensation Agreement. The court ordered Shoplogix to pay Mr. Celestini 18 months of damages in lieu of reasonable notice, taking into account his base salary, bonus, car allowance, and lost benefits, amounting to $458,232, plus costs and interest.
The decision in Celestini v Shoplogix Inc. serves as an important reminder for employers that employment contracts entered into at the start of employment may not be enforceable where an employee's duties and responsibilities have fundamentally expanded over time. Employers can protect themselves by including an "anti-obsolescence" clause in all offer letters and employment contracts, which would ensure that the terms and conditions of the contract continue to govern the employment relationship regardless of any changes to the employee's position, compensation, duties, or responsibilities.
Employers should also ratify the terms and conditions of any existing contracts when promoting employees or increasing their compensation. Alternatively, employers may consider asking employees to enter into new employment contracts with updated terms and conditions when rolling out new compensation plans.