Changing a benefits package

Can an employer make significant changes to a benefits package without notice or consideration to employees?

Changing a benefits package
Stuart Rudner

Question: Can an employer make significant changes to a benefits package without notice or consideration to employees?

Answer: Generally speaking, an employer cannot unilaterally change the terms of an employee’s employment contract. If they do, there is a risk of potential liability as the employee may allege “constructive dismissal.”

A constructive dismissal occurs when the employer makes a substantial change to a fundamental term of the agreement or employment relationship. If there is no written agreement, then the terms can be ascertained through past practice; an employer can’t simply say that there is no contractual entitlement to a bonus, for example, when a bonus has been consistently paid out over time.

So, the question to ask is whether we are discussing a fundamental term and whether the extent of the change is substantial. A nominal decrease in compensation will not rise to the level of constructive dismissal. In this case, what is the impact of the changes to the benefits package on the employee?

Another thing to consider is whether the employer had the right to make the changes in the first place. Many contracts explicitly provide that benefit plans can be changed at the discretion of the employer. This requires a case-by-case analysis.

That being said, employers can make such changes if they provide sufficient notice or consideration. For example, the employer could advise that the changes will be effective on a specified date in the future. However, the amount of notice required would be the same as if they were providing notice of dismissal, which can be extensive. The employer might also provide consideration — something of value — such as cash compensation. The employee would have to accept this quid pro quo for it to be legally effective.

Stuart Rudner is the founder of Rudner Law, an employment law firm in Markham, Ont. He can be reached at [email protected] or (416) 864- 8500. This article was written with the assistance of Nada Zaman, an associate at Rudner Law in Toronto. She can be reached at (416) 864-8503 or [email protected]

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