Changing the employment contract

Imposing unilateral changes to the contract could lead to a constructive dismissal charge if it’s not done properly

Stuart Rudner
This is the first of a three-part, in-depth series on constructive dismissal by Stuart Rudner. Look for the next article in issue # 400 of Canadian Employment Law Today.

Most human resources professionals know you can’t unilaterally change fundamental terms and conditions of an employee’s contract. For example, you cannot reduce someone’s salary from $150,000 to $50,000, or “re-assign” the vice-president of marketing to a new role as a salesman.

Such changes relate to the very heart of the employment agreement and as a general rule cannot be made unilaterally by either party — and I have yet to see an employer try to do so. But there are ways for employers to make such changes. One way is to negotiate them. Another is to impose them upon the employee. The imposition of changes may seem to be contrary to the opening premise of this article. The key is doing it the right way by providing reasonable notice of the change.

I am often consulted by clients who want to make substantial changes to an employee’s terms of employment. Sometimes they want to demote the employee to a lesser position because he is not performing at the level required of him in his current position. Other times an employee’s commission scheme has become so out of whack the company needs to reel it back in. Usually the client has called me because they are concerned that if they do so they will face a constructive dismissal claim.

Constructive dismissal is defined in the Employment Standards Act of Ontario and is also a well-entrenched common-law concept. In essence it involves a unilateral change to a fundamental term of the employment contract. When such changes are made, employees can either accept it and continue working under the new terms and conditions or they can tell their employer they consider themselves to have been constructively dismissed and leave. There are circumstances where the duty to mitigate requires the employee to stay on in the new position. (Those circumstances will be addressed in more detail in a subsequent article.)

The good news for employers is that they can impose unilateral changes to the employment contract. The bad news is they must provide the employee with reasonable notice of those changes. For example the employer could advise the employee, preferably in writing, that, “as of April 1, 2004, your salary will be reduced to $50,000 per annum.”

The amount of notice is generally considered as the same as what would be required, at common law, if the employer wanted to terminate the subject employee without cause. In other words it can be months or even years. Where several employees are involved, the most prudent course of action is usually to determine which employee is entitled to the greatest period of notice and then provide that amount of notice to all affected employees.

Once an employee has been notified of the future change, she is, of course, free to seek other employment, as she would be at any time. But if she remains in the employ of the company, the company will be entitled to impose the changes once the notice period has passed. If the employee chooses to leave at that point, they should be precluded from successfully bringing a claim for constructive dismissal. But there is nothing precluding someone from commencing a claim, regardless of the merits. All an employer can do is protect itself as well as possible so it will be in a good position to successfully defend the claim.

Depending upon the circumstances, providing notice of a change in the terms of employment may be the most beneficial course of action for an employer to take. But it must be kept in mind that, like working notice, it is possible that doing so will have a negative impact on worker morale. An employer may not want to keep someone around for a year’s worth of notice, and then indefinitely thereafter, if they will be visibly or vocally unhappy and potentially poison the work environment. As well, if the employee has access to sensitive information, or significant client relations, the organization may not want to put itself in the position where the employee can exact some sort of revenge for the manner in which she perceives herself to have been treated.

Conversely, the ability to impose unilateral changes, even with the mandatory time delay, is often a far better alternative than either letting the employee go or keeping her on without changing the employment relationship. Like any other potential course of action in the context of employment, this is a decision that must be made on a case-by-case basis after considering the circumstances and the persons involved.

By providing reasonable notice an employer can make unilateral changes to the employment contract while protecting itself from a finding that they have constructively dismissed the employee. The Supreme Court of Canada has confirmed this. But to successfully employ this strategy, sufficient notice of the change must be given. It would be short-sighted to adopt this strategy but provide an inappropriately low amount of notice. As in the context of terminations, it is always wise to consult an employment lawyer before proceeding. Spending a relatively nominal amount before taking action can often help to avoid thousands of dollars in legal fees down the road.

The next article will discuss the other way to change an employee’s contract: negotiating the changes. Specifically, Rudner will address what is required in order to make the changes legally effective.

Stuart Rudner practices civil litigation and employment law with Miller Thomson LLP’s Toronto office. He can be reached at (416) 595-8672 or via e-mail at [email protected].

To read the full story, login below.

Not a subscriber?

Start your subscription today!