A constructive dismissal based on changes in compensation

In employment law, employees facing a significant change to their job may be able to pursue a constructive dismissal claim against their employer. How does an employee succeed on a constructive dismissal claim?

The Supreme Court of Canada in a case called Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 explained that, in a workplace that is non-unionized, an employee is constructively dismissed if one of the following tests is satisfied:

Single unilateral change: (a) The employer makes a unilateral change that breaches an express or implied term of the employment contract, and (b) this breach substantially alters an essential term of employment. To determine part (b), one must ask whether a reasonable person in the same situation as the employee would have believed that an essential term of employment was substantially changed.

Series of acts: A course of conduct by the employer, rather than a single unilateral change, that shows the employer no longer intends to be bound by the employment contract.

In other words, the test for proving a constructive dismissal is where an employer implements a major change in terms and conditions of employment that no reasonable person should have to accept.

Generally speaking, a constructive dismissal claim is very risky for employees, since if they are unable to prove the change to their job was significant, a court would find they voluntarily resigned or abandoned their job, which forfeits their right to receive or negotiate a severance package. Additionally, employees are also legally required to make a timely objection to the changes, as waiting too long rather than quickly protesting could result in a court finding that the employee acquiesced to the change in working conditions (condonation).

The important question is how long does an employee have to wait before taking action in a constructive dismissal claim? There have been very few cases on point. However, in a recent case in Alberta, the court in Kosteckyj v Paramount Resources Ltd. found that an employee acquiesced to significantly reduced compensation by continuing work without raising any concerns for 25 days.

Facts

The employee began working for the employer as a senior integrity engineer in 2013. As April 1, 2020, in response to the economic downturn, the employer announced a cost reduction program decreasing employees’ base salary by 10%, suspending the 6% RRSP contribution, and delaying or canceling the bonus program. Importantly, there was no express or implied term in the employment contract allowing the employer to reduce compensation in such circumstances.

The employee did not protest the changes by communicating any objections to the employer, and she continued to work at the same office carrying out the same duties as prior.

On April 22, 2020, as a cost-cutting measure, the employer terminated certain employees, including the employee, on a “without cause” basis.

After the termination, the employee commenced a claim against the employer and eventually alleged constructive dismissal as a result of the changes to her compensation. The employer denied that the employee was constructively dismissed. Instead, it maintained that the employee’s employment was terminated without cause on April 22, 2020 and asserted that pay in lieu of reasonable notice of termination was owed to the employee in accordance with the reduced compensation that she was earning at the time her termination.

Decision

The court found that that the employer’s changes to the employee’s compensation was not a constructive dismissal. As such, she was only entitled to bring a wrongful dismissal claim as a result of the termination itself (where her entitlements upon termination would be lower and based on the reduced compensation).

In finding that the employee could not prove constructive dismissal, the court held that while the change in reduction was substantial change to an essential term of the employment contract to the detriment of the employee that was not authorized, the employee accepted or acquiesced to the changes. Specifically, the employee had enough time of 25 days between the announcement of the compensation changes and her employment termination was sufficient for the Plaintiff to decide whether to accept the changes or leave and assert constructive dismissal. However, because she continued work for three weeks doing the same tasks from the same office without taking any steps to communicate her dissatisfaction with the changes, she had acquiesced to the compensation changes and was therefore not constructively dismissed.

Contact an Experienced Employment Lawyer

In Ontario employment law, it is always prudent for employers (and employees) to speak with an experienced employment lawyer when they would like to know what legal rights you have as an employer or employee in Ontario. If you are an employee who believes you were wrongfully dismissed or want to negotiate your severance package, please speak with our experienced constructive termination lawyer in Toronto regarding your legal rights and options as an employee, including negotiating your severance package to obtain the severance compensation you deserve, as well as constructive dismissal claim.

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