Is a rewards program a fundamental part of the job?
Question: If an employer significantly changed a longstanding rewards and recognition program for employees, does it have to provide a certain amount of notice? Could such a change be considered a change to employees’ jobs?
Answer: Significant changes to an employee’s contract of employment can constitute constructive dismissal if implemented unilaterally by the employer without proper notice. The purpose of providing notice of an intended change in terms of employment is to avoid the possibility of the change being treated by an affected employee as a constructive dismissal. A number of factors come into play in determining whether a particular unilateral change constitutes a constructive dismissal.
First, it is necessary to determine whether the change would amount to a breach of the employment contract. If the change would breach a contractual term, the next step is to assess whether the change is one that would substantially alter an essential term.
It is not always easy to determine the terms of a contract of employment when they are not set out in writing. Not every benefit conferred by an employer on its employees is a term or condition of employment, much less an essential term. Similarly, not every change, even to an essential term, will be considered substantial. The test is whether a reasonable person in the same situation as the affected employee would feel that an essential term of the contract was substantially changed.
If an employer has an express or implied right to implement a change to a longstanding rewards and recognition program, there will be no breach of contract and no requirement to provide notice even if it is substantially changed, regardless of the length of time the program has been in place. However, if the employer has never claimed or exercised a right to alter a longstanding program, a contractual right to make unilateral changes might be more difficult to prove.
Assuming that the evidence suggested a particular rewards and recognition program was a term of employment, it would then be necessary to address the question whether it was an essential term. The answer to this question would depend very much on the character of the program. A program that provided substantial financial bonuses or rewards of significant value would be regarded differently than one that offered an employee the opportunity to take an afternoon off or select a piece of company-branded luggage after five years of service.
The case law provides some guidance on the consequence of changes to status and compensation related benefits.
In Hamilton & Olsen Surveys Ltd. v. Otto, the employer ceased its practice of matching employees’ RRSP contributions and reduced the employees’ vacation from six weeks to four weeks in response to dramatically reduced revenues. The value of the rollbacks was between approximately 6.5 per cent and eight per cent of the employees’ compensation. The Alberta Court of Appeal held the employees had not been constructively dismissed. If the pension contributions and vacation entitlements were terms of the employment contracts, their cessation was relatively minor and readily compensable by damages. In the court’s view, however, the employer had simply made a periodic adjustment in compensation in accordance with a practice that had traditionally marked its treatment of the collateral benefits between the employer and its employees. On the evidence, employee compensation levels had always depended on the current fortunes of the company.
In Piron v. Dominion Masonry Ltd., the employer discontinued a variable bonus that it had paid to the employee in previous years on top of his hourly wage, again relying on a downturn in the economy to justify its action. It was the employer’s position that the payment was discretionary and it was entitled to revert to paying the employee only his hourly wage. The trial judge disagreed, finding that the employee had a contractual right to negotiate for an annual bonus that reflected his responsibilities. The discontinuance of that right had substantially altered his terms of employment, changed his status within the company, and constituted a constructive dismissal. The appellate court upheld the finding of constructive dismissal, noting the trial judge’s finding the change was not just quantitative but also involved a change in the employee’s status. However, it disagreed with the trial judge about the nature of the employment term. The British Columbia Court of Appeal held that the employee had a contractual right to insist not just on a right to negotiate for annual recognition bonuses, but on the annual bonuses themselves.
In Pathak v. Jannock Steel Fabricating Co., the employer removed a negotiated bonus given to the employee together with some of his new responsibilities. The trial judge reasoned that the employer had complied with its obligation to pay the “vast majority of compensation” owed to the employee and found that no constructive dismissal had occurred. The Court of Appeal overturned that finding. It found that the bonus was negotiated by the employee as a means of distinguishing his position from those of other employees. It was a term of the employment contract and a separate and discrete obligation unrelated in any way to the removed responsibilities. A reasonable person in the employee’s position would have regarded the unilateral termination of the bonus as a substantial change amounting to constructive dismissal.
The loss of a management bonus that was about five per cent or less of the employee’s total compensation and confirmed his loss of “management” status did not amount to a constructive dismissal in Robertson v. West Fraser Timber Co., where neither the amount nor receipt of a bonus was guaranteed.
In Hlewka v. Moosomin Education, the employer’s non-compliance with its contractual promise to deduct health plan contributions and pension payments and to make employer pension contributions of three per cent of the employee’s salary was a breach of contract entitling the employee to damages. It was not constructive dismissal.
Some courts have attempted to quantify a range of economic loss likely to constitute constructive dismissal. Pavlis v. HSBC Bank Canada, suggested that any reduction under 10 per cent of average salary would likely not be considered a constructive dismissal, without some other significant unilateral change.
It is certainly not possible to say that a lesser reduction would never constitute a constructive dismissal and the courts often reach different conclusions on the same facts as the cases above illustrate. However, assuming that the value of the rewards and recognition program was relatively insignificant in financial and/or status terms, it is unlikely that it would be considered a significant enough change to justify an employee treating its loss as constructive dismissal if proper notice of the change was not given.
For more information see:
• Hamilton & Olsen Surveys Ltd. v. Otto, 1993 CarswellAlta 108 (Alta. C.A.).
• Piron v. Dominion Masonry Ltd., 2013 CarswellBC 1028 (B.C. C.A.).
• Pathak v. Jannock Steel Fabricating Co., 1996 CarswellAlta 616 (Alta. Q.B.).
• Robertson v. West Fraser Timber Co., 2009 CarswellBC 1179 (B.C. S.C.).
• Hlewka v. Moosomin Education, 2007 CarswellSask 699 (Sask. Prov. Ct.).
• Pavlis v. HSBC Bank Canada, 2009 CarswellBC 939 (B.C. S.C.).
