Alberta company’s cost cutting, job cutting was constructive dismissal

An Alberta company that implemented cost-cutting measures that reduced an employee’s salary and RRSP contributions three weeks before terminating her employment constructively dismissed the employee, the Alberta Court of Queen’s Bench has ruled.

Olga Kosteckyj, 48, was a senior integrity engineer for Apache Canada, an oil and gas exploration and production company. Apache hired Kosteckyj in October 2013 and, in August 2017, Apache’s Canadian business was taken over by Paramount Resources, a Calgary-based petroleum and natural resources exploration company. As part of the transaction, Paramount assumed responsibility for Kosteckyj’s employment and continued to pay her the base salary she had been receiving with Apache. However, Paramount adjusted her benefits and bonuses to match its own programs.

Kosteckyj continued in her role with Paramount for about two and one-half years until March 27, 2020, when Paramount announced that it was implementing a company-wide cost reduction program as of April 1. The program involved reducing the salary of all employees by 10 per cent, reducing the salary and fee reduction of all directors and the CEO by 20 per cent, suspending the company’s six-per-cent RRSP contribution program and cancelling the 2019 bonus program.

When the cost reductions came into effect, Kosteckyj’s salary was reduced and the company’s contribution to her RRSP was halted. She didn’t know the status of her bonus for the past year, but her access to seminars and training was also restricted. Kosteckyj went along with the changes and took no steps to accept or reject them.

Cost reduction followed by termination

Three weeks later, Paramount moved forward with another cost-cutting measure of reducing the company’s workforce by 15 per cent. Kosteckyj was part of the job cuts and she was terminated without cause on April 22. Paramount offered a sum of money in exchange for her signing a release of claims, but Kosteckyj rejected the offer. As a result, the company paid her five weeks’ pay in lieu of notice, the minimum requirement under the Alberta Employment Standards Code.

Kosteckyj filed a claim seeking damages for wrongful dismissal and constructive dismissal, the latter based on the changes to her compensation that was part of the cost reduction program. She claimed she was entitled to 12 months’ notice of dismissal.

The court noted that Kosteckyj’s employment contract had changed over the years from her original offer letter and Kosteckyj had accepted or rejected them at the time, but the cost reduction program that Paramount implemented was a unilateral and significant change to the essential terms of her employment contract that was detrimental to Kosteckyj. Despite the fact that the cost reduction program was “a legitimate business reaction to turbulent economic times,” there was no expressed or implied term in the employment contract giving Paramount the authority to make such a unilateral change that significantly affected Kosteckyj and breached the contract, said the court.

The court found that although Kosteckyj didn’t notify Paramount that she rejected the change, there were only 25 days before she ended up being terminated. Given the “turbulent economic conditions” that contributed to Paramount’s cost-cutting measures, Kosteckyj didn’t have an obligation to decide whether the cost reduction program announced on March 27 was a repudiation of her employment contract within that period of time, said the court. Once Kosteckyj’s employment was terminated on April 22, there was no more need for her to consider whether the earlier measures constituted constructive dismissal.

Compensation cut by 20 per cent

The court also found that the salary reduction and the suspension of RRSP contributions by Paramount collectively amounted to a 16-per-cent reduction in compensation, and the loss of the bonus payment made the total reduction in compensation 20 per cent. This large reduction left no doubt that Kosteckyj was constructively dismissed, said the court.

The court found that Kostecky’s age was a neutral factor in determining her reasonable notice entitlement and she wasn’t in a supervisory or management position. However, she had considerable work experience as a professional engineer and her role was significant in that she was responsible for for leading Paramount’s pressure integrity management system and training employees on it.

The court noted that Paramount’s position was that it terminated Kosteckyj “as a result of serious and ongoing economic issues” that the company faced, including “a significant historical reduction in commodity prices and the economic impact created by the COVID-19 pandemic.” For her part, Kosteckyj added that she had found few employment opportunities comparable to her position with Paramount as the oil and gas industry was in a “protracted economic downturn” as well as being in the midst of the pandemic.

The court also noted that damages for wrongful or constructive dismissal are meant to compensate for the lack of notice and provide employees with the opportunity to seek new employment, not to penalize the employer for the dismissal itself. The state of the industry and economic conditions should be factored into this, but not “given disproportionate effect,” the court said.

The court determined that, based on Kosteckyj’s six and one-half years of service with Apache and Paramount, as well as the fact that she was constructively dismissed in the midst of an economic downturn in the oil and gas industry and during the pandemic, she was entitled to nine months’ notice starting from April 1, 2020 — the date Paramount implemented the cost reduction program reducing her compensation and thus constructively dismissing her.

The court added that the damages should be calculated based on Kosteckyj’s salary and RRSP contributions before the constructive dismissal started with the cost reduction program. However, the court found that she wasn’t entitled to her 2019 bonus because the restricted share unit bonus plan stated that if a grantee’s employment was terminated for any reason, with or without cause, all unvested restricted share units would be terminated and forfeited by the grantee “on the date of the notice of the grantee’s termination, and not on the date of expiry of any period of reasonable notice, or statutory or common law severance period.” There was also no entitlement to a 2020 bonus, as such a bonus would be payable in 2021 after Kosteckyj’s notice period expired.

The court also found that Kosteckyj was entitled to the cost of a course she took to qualify as a pressure vessel inspector as part of her mitigation efforts along with dues she paid to maintain her professional status as an engineer during the notice period.

Paramount was ordered to pay Kosteckyj constructive dismissal damages equivalent to nine months of her pre-cost reduction salary, benefits and employer RRSP contributions with the three weeks of reduced April 2020 salary paid to her and termination pay subtracted. The total damage award amounted to $107,247.97.

For more information, see:

• Kosteckyj v. Paramount Resources Ltd., 2021 ABQB 225 (Alta. Q.B.).