Employers Can Insist on New Contracts When Employees Retract Resignation

When an employer permits an employee to retract a previously-accepted resignation, the employer can insist upon modified terms to the employment contract as a condition of continued employment, even where there has been no interruption of work.

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If an employer has accepted an employee’s notice of resignation, the employee cannot typically renege without permission from the employer.

But what impact does an aborted resignation have on an employee’s length of service and terms of employment? Maybe none, if the employer simply takes the employee back on the same terms as before, without any qualification and without any interruption of work.

But a recent decision from the Court of Appeal for Ontario clarifies that, in response to an aborted resignation, an employer can validly implement new contractual terms which limit the employee’s future termination entitlements.

This is a somewhat exceptional result when considered in light of existing rules about calculating employee tenure and rules restricting the imposition of new contracts during employment.

Length and Continuity of Employment

Longer-serving employees are generally entitled to more notice of termination (or pay in lieu of notice). Length of service is usually easy enough to calculate from the date of hire. But a significant gap in work with the same employer can interrupt continuity of employment. Still, courts will look past short gaps in employment to recognize past years of service. And courts will even look beyond business restructurings which result in a change of employer, recognizing past service with a predecessor company.

No Unilateral Changes to Contract

Employers are not typically able to impose changes to an employment contract mid-employment, even if the employee agrees to the changes. For promises to be recognized as binding contractual obligations, the law requires “consideration.” Consideration refers to the requirement that there be a thing of value exchanged in a deal. Because an existing employee has previously agreed to work for the employer, she can’t offer her labour a second time, and her mere agreement to continue working will not typically be regarded as good consideration for new contractual terms. The court won’t enforce the employer’s changes.

An Aborted Resignation Opens The Door

These two concepts, continuity of employment and lack of consideration, were at play in Theberge-Lindsay v. 3395022 Canada Inc., 2018 ONSC 3222 (CanLII), a decision recently overruled by the Court of Appeal in 2019 ONCA 469 (CanLII).

In this case, the employee had been hired in 1993. In 2005, she gave her employer notice of resignation, but then changed her mind before her last day of work. Her employer agreed to let her stay on, and she continued in her employment without interruption for several more years.

When she was ultimately dismissed, she argued that she should be treated as having been continuously employed from 1993. However, her employer relied on a new contract she had signed in response to the aborted resignation in 2005.

The trial judge was prepared to recognize the employee’s full tenure, treating the “retraction of the resignation” as accepted by the employer with “no impact” on the employee’s continuity of service. The trial judge also considered the contract unenforceable because her continued employment was not good consideration.

But the Court of Appeal overruled the trial judge. The Court of Appeal was of the view that the aborted resignation did open the door for the imposition of a new contract. The appeal court considered the employee’s “unequivocal resignation and re-hiring in 2005” to be a “break in the employment relationship.” Even though the employee never actually stopped working, the court took the view that “an entirely new contract was reached,” and there was good consideration for the contract because it constituted “an offer to again be employed” as opposed to merely an offer for continued employment.

Brief Reasons

The Court of Appeal’s analysis doesn’t address the implications of the employee’s unbroken period of actual work. By omitting that discussion, the court seems to have treated it as entirely subordinate to the question of the employee’s contractual dealings with the employer. This represents a somewhat uncharacteristic departure from the relevant cases, in so far as the Court of Appeal effectively places the emphasis on only the legal formality of contract without inquiring into the real-world substance of the circumstances. By contrast, the relevant cases relied upon by the trial judge often look past the formal structure of an employer’s affairs to ensure that employee rights are not unduly restricted. The Court of Appeal’s very brief reasons might have benefited from a fuller discussion on this nuanced issue.

Nevertheless, this decision sets a precedent indicating that employers can negotiate new contractual terms when an employee asks to retract a previously-accepted resignation, even if there is no actual interruption in work.


 

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