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How the Doctrine of Changed Substratum Could Hurt Dentist Employers

By June 13, 2023April 29th, 2024Employment Law

In this post, we’ll be looking at the recent Ontario Court of Appeal decision in Celestini v Shoplogix Inc., 2023 ONCA 131 (CanLII) (“Shoplogix“). This case serves as a reminder to all employers to be mindful of the changes they make to employees’ terms of employment, especially those that expand job duties. The Court of Appeal upheld a lower court’s decision to apply a common law doctrine known as the ‘changed substratum doctrine’ in favour of the employee. For the employer, this meant paying damages for an additional 6 months’ worth of lost salary, plus other bonuses the employee would have earned during their common law notice period.

Changed Substratum Doctrine

In a nutshell, the changed substratum doctrine is best illustrated in scenarios where:

  • an employee signs a written contract that supposedly limits their entitlements upon termination;
  • the employee’s duties, responsibilities, compensation and/or position morph and change over time; and
  • the employer terminates the employee’s employment and gives notice (or pay in lieu) according to what’s in the contract but discovers that the signed contract no longer applies because the substance of the job – or in legalese, the ‘substratum’ –  has changed and the old contract no longer reflects the reality of the job.

The Shoplogix decision gives employers some clarity about the application of the changed substratum doctrine.

Shoplogix Case Background

The plaintiff in Shoplogix, Stefano Celestini, was a key officer of the appellant company from its founding in 2002 until the day he was fired in 2017. Celestini signed a written employment contract in 2005 as Shoplgix’s Chief Technology Officer. Within this contract, his stated duties were left somewhat open-ended and were subject to the CEO’s oversight. However, the duties did not involve marketing, sales, travelling, soliciting investors, or taking on infrastructure responsibilities.

In 2008, Shoplogix hired a new CEO who began making “dramatic changes to revitalize” the company. These changes resulted in Celestini taking on more responsibilities and a heavier workload, including travelling to pursue sales leads, handling infrastructure and marketing and having other employees report to him. On top of the added responsibility, he was also put onto an ‘incentive compensation agreement’ (ICA), aka a ‘bonus plan’, which significantly enhanced his take-home earnings.

In March 2017, the company terminated Celestini’s employment without cause. In accordance with his signed contract, Shoplogix paid him 12 months of base salary (plus health coverage continuation) and a pro-rated bonus for the 2017 calendar year up to the date of termination. Celestini instead sought termination entitlements based on common law reasonable notice rather than what was in his contract and brought a wrongful dismissal action relying on the changed substratum doctrine.

The Issues

The primary issues discussed in the Shoplogix case can be summed up as follows:

  1. Is a change in title or a formal promotion absolutely required to determine whether a job’s substance has changed?
  2. Were the changes at issue in this case fundamental enough to justify disregarding a signed contract?

The Court also briefly discussed whether the ICA bonus (which Celestini would have earned during his notice period) should have been included in wrongful dismissal damages. For more on including or excluding bonuses from wrongful dismissal damages, please check out our previous To Pay or Not to Pay blog.

The Decision

In this case, the Court answered that no, a change in title or formal promotion is NOT required for the changed substratum doctrine to apply. Shoplogix argued that Celestini was at all times an executive member and never technically got promoted upwards. However, the Court disagreed and stated that the relevant question of what’s changed is “one of substance, not form“. The Court clarified that while there must still have been an expansion (and not a reduction) in the employee’s duties, giving someone a new or higher title is different from actually increasing their responsibilities.

As for the employer’s argument that Celestini’s additional job duties were non-fundamental changes, the Court disagreed again and declined to overturn the lower court’s findings on that issue. The Court’s reasoning was based on a foundational principle of Canada’s courts and administrative law that decisions of ‘triers of fact’  deserve deference. The motion judge who tried the case prior to the appeal had already found that the post-2008 duties imposed on the employee were “substantial” and non-incremental. As it found no palpable or overriding error in the motion judge’s reasons, the Court declined to go over their predecessor’s head or interfere with his findings.

Why Does This Matter?

So, what does this case mean for you, the dental practice owner? This case serves as another reminder to do regular spot-checks of your employment contracts and have them reviewed for legal compliance.

At DMC, we encourage dentists to stay vigilant and have highlighted other instances where such reviews would be advisable. Even if you have had team contracts drawn up in the past, the danger highlighted by the Shoplogix case is that employees’ responsibilities, duties, privileges, benefits, and compensation can and DO change over time. And in situations where changes are significant, these changes end up invalidating their entire contract altogether, leaving the dentist employer unprotected if or when it comes time to terminate the relationship. And while not every single item which unilaterally benefits an employee (e.g., a pay raise) needs to be documented, that is different from, say:

  • a front-desk person or receptionist being promoted to office manager or taking on more and more managerial duties without updated paperwork to reflect their increased responsibility or,
  • an uncertified assistant who doesn’t sign updated paperwork once they attain their Level 1 or 2 certifications and begin to take on certified duties.

The above are only two basic examples, but the specific situation facing a particular employer may differ in nuance and complexity. What remains constant, however, is the need for dentists to be alert when they make changes to their employees’ terms of employment, including adding more responsibilities or expanding job duties, and to be prepared to respond appropriately.

Bottom Line

While the circumstances in Shoplogix are not often seen in the dental industry, the case does serve as a reminder for all employers to keep track of when and how they may be changing the terms of their employees’ jobs and must make sure their contracts match their roles. Failing to periodically update your contracts to reflect changes in title or job duties may, as Shoplogix discovered, result in hefty financial consequences.

As part of your regular legal health maintenance routine, you should review your team’s contracts to ensure they are legally valid and withstand recent case law. If ever in doubt, consult us right away. Don’t wait to be caught off guard with an ugly lawsuit.

If you are unsure of your rights/responsibilities as an employer, please get in touch with us first. DMC is dedicated to helping dentists understand and minimize the risks associated with being an employer. Send us an email or give us a call at 416-443-9280 extension 205 to discuss the specifics of your situation.

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.