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Claiming Constructive Dismissal for Reduced Pay is Time-Sensitive

August 30, 2022

Constructive Dismissal

Author: Aviaah Randhawa

In the recent decision from the Alberta Court of Appeal in Kosteckyj v Paramount Resources Ltd, 2022 ABCA 230, the Court says employees, and especially professional employees, have a short timeline to decide if they will accept a change in their compensation. The Court also sets out that if an employee claims their compensation reduction constitutes constructive dismissal, then they must provide evidence of their objection to the change to rebut a finding of acquiescence.

Cost Reduction Measures and Constructive Dismissal

A summary of the case helps to illuminate the nuances of this decision. The employer, Paramount Resources Ltd., introduced a cost reduction program that involved cutbacks to the salaries and benefits of their employees. The program was announced March 27, 2020 and the changes took effect on April 1, 2020. Ms. Kosteckyj was a Senior Integrity Engineer with Paramount. As a result of the cost reduction program, Ms. Kosteckyj experienced the following: 

  • Paramount reduced her base salary by 10%, 
  • suspended contributions to her RRSP, 
  • either delay or cancellation of her 2019 bonus, and 
  • removal of her access to professional development opportunities. 

Ms. Kosteckyj took no steps to accept or reject these changes. With the aim to further reduce costs, Paramount scaled back their workforce by 15% and terminated Ms. Kosteckyj’s employment without cause on April 22, 2020. 

Paramount provided Ms. Kosteckyj with 5-weeks’ of pay in lieu of notice under Alberta’s Employment Standards Code. Ms. Kosteckyj advanced a wrongful dismissal claim and alleged at trial that she was constructively dismissed on April 1, 2020. The trial judge found in favour of Ms. Kosteckyj on the fact that the cost reduction program amounted to a change, and therefore a breach, of her employment agreement. The trial judge also found that, in the 25 days between being informed of the cost reduction program and her termination, Ms. Kosteckyj had no obligation to decide if this change repudiated her employment agreement. Paramount appealed that the trial judge erred in applying the constructive dismissal test.

To determine whether Ms. Kosteckyj was constructively dismissed, the Alberta Court of Appeal confirmed the trial court’s application of the first branch of the Potter test, which involves a two-part analysis. First, the court must determine objectively if a breach occurred by way of the employer unilaterally changing their employee’s contract. A change is not unilateral if an express or implied term permits the employer to make a change; or if the employee acquiesces to the change. If a breach is found, then the change must be detrimental to the employee. Second, if a breach is found, then the court must determine if a reasonable person would consider the breach a substantial change to an essential term of their employment contract.

Reducing Compensation

The Alberta Court of Appeal found Ms. Kosteckyj sufficiently proved that Paramount harshly reduced core elements of her compensation. However, the Court of Appeal did not uphold the trial judge’s finding that Ms. Kosteckyj refused to accept these changes. Justice Wakeling found that Ms. Kosteckyj accepted the new terms of her employment by continuing to work for Paramount 3 weeks after learning of the changes. Justice Wakeling further reasoned that 10 days is a reasonable timeline for a “healthy, knowledgeable and informed” professional like Ms. Kosteckyj to decide on the merits of accepting or rejecting such changes to her employment. Justice Wakeling qualified his stance as follows: “An employee without the attributes of Ms. Kosteckyj may require additional time to collect the information needed to make a prudent and informed decision. But it would be a rare case that a reasonable period would exceed fifteen business days” [Paragraph 60, Kosteckyj].

Justice Patelechuk and Justice Ho concurred with Justice Wakeling’s decision but for his 10-day timeline. Instead, they reasoned that 25 days was a sufficient timeline for Ms. Kosteckyj, given her years of service and the unique circumstances of the appeal, to decide whether to accept or reject such changes to her employment and claim constructive dismissal. The Court of Appeal did not specify a time period for an employee to reject a change to their compensation. However, the Court unanimously found that Ms. Kosteckyj’s decision to keep working for 25 days constituted indisputable evidence that she acquiesced to the reduction of her compensation.

Employers Contemplating Cost Reduction

This decision is significant for employees facing reductions in their compensation, especially professional employees. It is also an important case for employers contemplating cost reduction programs. We recommend that employees not delay in retaining legal counsel to elect whether to claim constructive dismissal. Moreover, we recommend that employers work with legal counsel to review their employment agreements to minimize the risk of litigation when implementing cost reduction measures.

If you are an employer and want to learn more about some strategies on how to limit the exposure to a constructive dismissal claim visit our practice area site here.

If you have questions about constructive dismissals, please contact Carbert Waite’s employment lawyers.

Carbert Waite LLP