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Unilateral Changes to Employment Contracts

May 20, 2016

Author: Lauren Barteluk

Unilateral Changes to Employment Contracts

Your employer has laid off many of your colleagues; but not you. Instead, your employer informs you that it is cutting your pay, increasing your hours, or changing your job duties. What options do you have?

As an employer, finances are tight. Can you reduce an employee’s salary? Can you require that your remaining employees take over the job duties of their terminated colleagues?

Where employers are contemplating making unilateral changes to terms of employment (including changes to workplace policies), numerous issues arise. What follows is a general overview of the law and the strategies that are often considered. This should not be mistaken for legal advice, as every case must be dealt with on its own unique facts and circumstances.

Basic Principles – Constructive Dismissal

Constructive dismissal will not be established in every instance of unilateral changes to the terms of employment. The employee must demonstrate that the employer’s conduct evinced an intention to no longer be bound by the employment contract. Whether or not constructive dismissal occurred is a question the Courts determine on the unique circumstances in the particular employment relationship. Some common examples of changes to the employment relationship that have constituted constructive dismissal include a material reduction in salary, a significant change in job duties; a geographic relocation; an unwarranted or lengthy suspension, a significant change to the hours of work and harassment in the workplace.

Employees’ Options

If an employer implements changes to the employment contract without notice, the employee has two primary choices: (1) accept the changes to his or her employment; or (2) reject the changes, resign and sue for wrongful dismissal.

The employee is entitled to take a reasonable amount of time to assess and determine whether the changes are acceptable. However, eventually the employee will be deemed to have accepted or condoned the changes by continuing in the new role. The amount of time before an employee is deemed to condone the changes depends on the particular circumstances of each case.

Ultimately, it is the employee’s burden to prove he or she has been constructively dismissed. This imparts some risk to the employee: If successful in proving constructive dismissal, the employee would be entitled to wrongful dismissal damages (payment in lieu of reasonable notice). If not, then the employee will be deemed to have resigned and would not be entitled to anything.

An alternative approach is to take the middle road. The employee can inform the employer that he or she rejects such changes to the employment contract. This then puts the ball in the employer’s court. The employer can choose to either terminate the employee without cause, giving rise to the obligation to provide reasonable notice or pay in lieu (or alternatively contractually agreed upon severance), restore the relationship on its earlier terms, or try and negotiate a different deal that the employee would accept.

Employers’ Options

At law, an employee is obligated to mitigate his or her losses in a wrongful termination by seeking new employment. Failing to do so could result in an outright refusal of the Court to award any damages or reduce the amount of damages payable by the employer. If an employee rejects the changes to his or her employment and claims constructive dismissal, the employer can offer the employee employment on new terms. If the employee fails to accept this offer, a Court would be more likely to find that the employee breached his or her duty to mitigate. Accordingly, offering new employment can be an effective way for an employer to mitigate its exposure to a constructive dismissal claim. Note that the employee would not be bound to accept new terms if the pay or duties are significantly different or it would otherwise be unreasonable in all the circumstances (such as where the employee would suffer humiliation or harassment).

Alternatively, an employer can mitigate its exposure to liability by providing reasonable notice of the changes it makes to the employee’s employment contract. Generally, the employer can accomplish this by providing the employee with advance written notice of the impending change. The length of the advance notice must be “reasonable” at law. We typically advise employers to provide notice that is equivalent to what a Court likely would deem reasonable notice upon a without cause termination of employment. [1]

1 There is some case law that suggests an employer ought to terminate the employee’s employment with reasonable notice, and then offer the employee employment on new terms.