pay cut constructive dismissal

What is a Constructive Dismissal in Ontario Employment Law?

A constructive dismissal claim occurs when an employee complains about a significant unilateral change made by an employer to the terms and conditions of their employment contract. Specifically, it involves an employee arguing that an employer has made a change so significant to the core purpose of their job that it has essentially (unofficially) terminated the employment relationship, justifying payment of severance compensation. Put differently, in the appropriate circumstances, it is akin to an employee telling an employer “you have forced me to quit involuntarily because the changes you’ve made have basically changed my job entirely.”

As the above comment makes clear, employees should only allege a constructive dismissal claim when it is appropriate to do so, as not every change will be enough to quit a job and seek a severance package. In fact, claim constructive dismissal is very risky is all-or-nothing: If the employee is wrong (that is, the change to their job is not so significant as to justify the employee’s resignation), they will have lost their job for naught, as the court will consider it a voluntary decision. On the other hand, the employee is also required not to simply continue with their job as usual. In other words, employees in a claim are expected to have protested (as opposed to simply continuing to work without objections) will be considered evidence that the employee has accepted the changes to their job by silence or acquiescence, which will likely defeat their constructive dismissal claim in a court.

For this reason, it is crucial for employees experiencing changes to their job, such as pay reduction, to speak with an experienced constructive dismissal lawyer about their specific case to obtain legal advice on their employment law rights in Ontario.

Types of Constructive Dismissal Claims

There are various types of situations where an employee should speak with a constructive dismissal lawyer about significant changes to their employment in the following categories:

pay cut (reduction in wages, salary, commission, bonus, and so on)
job relocation
demotion
addition or removal of duties and responsibilities (workload)
workplace harassment or discrimination
temporary layoff

Example of Pay Cut as a Constructive Dismissal

In a recent Alberta court case called Kosteckyj v Paramount Resources Ltd. 2022 ABCA 230, the court was asked to decide whether an employee took reasonable efforts to object to changes to the terms and conditions of their employment to succeed in their constructive dismissal claim, which would entitle them to a financial severance package. In doing so, the court decision provided an illustration of the test for constructive dismissal and how much “trial period” an employee has before they are required to have properly objected to changes to their employment.

In this case, the employer announced a few cost reduction measures on March 27, 2020 that would take effect April 1, 2020. As a result of these changes, the employee would be subjected to a 10% reduction in their salary; discontinuation of their RRSP contributions; and a delay or cancellation of annual bonus pay.

A few weeks later, on April 22, 2020, the employer terminated the employee’s job without cause, and only paid her minimum statutory termination pay under employment law. As a result, the employee brought a constructive dismissal claim alleging she had ‎been constructively dismissed on April 1, 2020 when the cost cutting measures took effect.

In its decision, the Court of Appeal agreed with the employee that the the employer had unilaterally changed the employee’s contract to her detriment by making severe reductions to key or core aspects of her compensation package. However, it also found that the employee had effectively accepted the changes to their job (pay cut) by continuing to work in the same role after the changes were made for more than ten (10) business days. In the court’s view:

[61] An employee confronted with a reduced compensation package has to decide whether continued employment under less generous terms will prove in the short, medium and long term to provide him or her with greater benefits than other potential employment opportunities in the same time frames. A thoughtful person will do his or her best to estimate how much time it will take to find a new job that pays more than the reduced compensation the current job offers. The inquiry will also take into account whether the business climate will improve and when so that the current employer may be in a position to increase employee compensation. If the market for the skills the employee possesses is depressed the answer is obvious – accept the new terms and hope that the economy returns to normal as quickly as possible.

[62] Most of the time the answer is self-evident – it is better to be employed than unemployed.[61] While the employee is undoubtedly in a stressful situation, the answer to the key question is usually obvious and not difficult to discover.

[63] An employer that decides to substantially reduce the compensation of its employee complement most likely does so because of a challenging business environment[62] and needs to know almost immediately if some members of the current workforce are not prepared to accept the new terms. The departure of some employees may require the employer to reorganize its workforce or search for new employees who are willing to accept the new terms of employment. As noted some years ago, “an enterprise decides to enter into an employment relationship because it expects the benefits flowing from a worker’s presence to exceed the costs associated with having an employee and thus advance the business’ interests”.[63] An employer cannot make this calculation without knowing what its obligations to its employees are.

Constructive Dismissal Lawyer in Toronto

In Ontario employment law, it is important for employees to consult with a constructive dismissal lawyer as soon as they are told by an employer that their employment will be terminated. If you are an employee who believes you have been wrongfully dismissed, please speak with our experienced constructive dismissal lawyer in Toronto regarding your options, including negotiating your severance package to obtain the severance compensation you deserve, as well as wrongful dismissal claim.

Contact us by phone 647-822-5492 or fill out the contact form to the side. Our employment lawyer in Toronto would be happy to assist in your employment law matter as quickly as possible.

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