Restructured out of job

Demotion or change in job title or responsibilities can constitute constructive dismissal

Repko Meerman began working in the Edmonton office of Scaffold Connection Corporation in August 1997. In September 1997 he accepted an offer to work as Scaffold’s branch manager in Halifax. By September 1999 he was promoted to regional manager for the Maritimes.

He was responsible for overseeing an important project in Nova Scotia with Irving Oil. His remuneration was comprised of both salary and commissions. During his work on the Irving project Mr. Scaffold’s commission earnings increased substantially.

Unfortunately in 1999 Scaffold ran into serious financial difficulties. In December 1999 Scaffold made an application under the Companies’ Creditors Arrangement Act (CCAA) and underwent many changes and restructuring including the employee commission structure. As a result of the CCAA application the contract with Irving Oil was renegotiated and an accountant with KPMG was appointed as the monitor.

The existing commission structure was to end by Feb. 28, 2000, and a new structure was to be implemented once details were worked out. The responsibility for formulating the new structure for Mr. Meerman’s division was with his immediate supervisor Mr. Solvey. By August 2000 there was still no new structure in place. On Aug. 11, 2000, Mr. Meerman and some other employees met with Mr. Solvey to address the issue of the new structure and outstanding commission amounts.

On Aug. 14, 2000, Mr. Meerman received a letter from Scaffold informing him that his duties within the company were changing. Effective immediately his new position would be as labour liaison for the Maritimes. This new position also resulted in a reduction in his salary by $25,000. Mr. Meerman responded to this letter and requested further information about the job and the reasons for the change. He informed Scaffold that he was not accepting the change in position.

On Aug. 21, 2000, Mr. Meerman received another letter from Scaffold dismissing his employment with the company. As a result of this dismissal Mr. Meerman brought an action for damages for wrongful dismissal and for unpaid commissions.

The issues before the Court were:

• whether Mr. Meerman was constructively dismissed on Aug. 14, 2000, or earlier;

• whether Mr. Meerman was dismissed with just cause on Aug. 21, 2000; and

• what commissions were owing to Mr. Meerman at the time of his termination.

A unilateral change in a term of employment can constitute constructive dismissal where the change is a fundamental one that goes to the very root of the contract so as to treat the contract as repudiated. Minor or reasonable changes do not amount to a fundamental change in the terms of the contract. Mr. Meerman argued that a change in his remuneration occurred in February 2000 when the old commission structure was terminated.

The Court did not agree that this was a fundamental change so as to repudiate the contract. Although the commissions at that time constituted a significant portion of his remuneration it was only because of the Irving Oil project. Prior to that project his annual commissions averaged $5,000.

Although the Court found that Mr. Meerman was not constructively dismissed in February 2000, it held that there was a constructive dismissal on Aug. 14, 2000, when he was demoted without notice. The new position that Scaffold outlined in its letter of Aug. 14 was vastly different from his old position. His salary was reduced from $75,000 per annum to $50,000. He was assigned to a position that had not existed previously.

Having found that Mr. Meerman was constructively dismissed on Aug. 14, 2000, the Court did not need to determine whether Mr. Meerman was dismissed for just cause on Aug. 21, 2000.

The Court then considered what constituted reasonable notice in this case. The Court considered Mr. Meerman’s relatively young age (35), his brief employment (34 months), his position (middle management) and the fact that similar employment was readily available. Mr. Meerman had found an equivalent position at a lower salary with another company within three months of termination. Based on these factors the Court held that three months was a reasonable period of notice.

On the issue of commissions the Court was not prepared to impose a new structure for the period after March 1, 2000. The Court awarded Mr. Meerman $25,000, the same amount that was awarded as a retention bonus to another employee who worked on the Irving Oil project.

For more information:

Scaffold Connection Corp., Re., 2001 ABQB 1127.

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