Constructive dismissal and COVID-19

Can extreme circumstances such as COVID-19 allow employers to take measures that might normally be constructive dismissal?

Constructive dismissal and COVID-19

Question: Can extreme circumstances such as the COVID-19 pandemic allow employers to take measures that might normally be considered constructive dismissal to stay in business if employees still object?

Answer: The phrase “constructive dismissal” refers to a situation where, while an employer has not expressly terminated an employee, the employee alleges that the employer’s actions amount to a repudiation of their employment contract. The risk of constructive dismissal claims typically arises where an employer unilaterally changes a fundamental term or condition of the employment relationship. Such changes could be a reduction in wages (generally more than 10 per cent), demotions, significant changes in schedule or duties and even temporary layoffs.

COVID-19 has presented completely unforeseeable and unprecedented challenges to employers. Many have had to cease operations (either voluntarily or by order), have seen a decrease in revenue and cash flow and have had to assess staffing in a way these companies have not had to do before. Unfortunately, this dramatic change to the status quo is not something that has been contemplated by provincial employment standards legislation or the courts. Businesses are presently doing the best they can with the tools that exist.

Ultimately, employers may have to take measures that might normally be considered constructive dismissal to stay in business. For example, a lot of employers have implemented wage and hours reductions, temporary layoffs or work-sharing arrangements to survive the pandemic.

What is important is that there is no constructive dismissal if an employee accepts or acquiesces to the change. Further, even if it is constructive dismissal, employees will be viewed as having acquiesced to the change if they do not object in a timely manner.

With any negative change that may constitute constructive dismissal, employers can mitigate that risk by doing the following:

  • Implementing the change in exchange for something positive for the employee (such as making changes at the time of a promotion, a pay increase or some kind of new benefit).
  • Giving advance notice of the change in an amount similar to reasonable notice of termination. In reality, employers are terminating employment on the existing terms (at some later date) and offering new employment at slightly different terms the very next day. This type of notice needs to be carefully worded.
  • Getting employee buy-in through effective communications.
  • In some circumstances where the change will not be universally applied to all employees (such as a reduction in hours of work), ask employees for volunteers. For example, we have heard reports that an employee has favoured a reduction in hours (and a corresponding reduction in wages) due to the child-care issues that have arisen as a result of school closures.

Importantly, in the present COVID-19 circumstances and in view of the reported two million jobs lost in Canada in April 2020, it is more likely that employees may be willing to acquiesce to fundamental changes as long as they continue to have a job. As an aside, emergency financial measures such as the Canada Emergency Wage Subsidy can assist employers to keep employees. How these programs play into cost reduction measures is a complex and case-specific situation for which employers should seek legal guidance.

Overall, the best strategy is to be transparent about the reasons behind any change and see if employees object, at which point the employer would need to decide how to respond.

 

Tim Mitchell practises management-side labour and employment law at McLennan Ross in Calgary. He can be reached at (403) 303-1791 or tmitchell@mross.com.

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