'If a legal letter contains alarming information, a reasonable person will feel the heat of added hostility'
“Blindly using template employment agreements or making unintentional errors resulting in a demotion or some other significant change can end up costing much more than simply getting legal advice at the outset.”
So says Ioana Pantis, an employment lawyer at McMillan LLP in Toronto, after an Ontario court awarded more than $300,000 in constructive dismissal and moral damages to a worker who was informed of a significant pay cut and job title change on the day she returned from maternity leave.
King Ursa is an advertising company in Toronto. It hired the worker in 2019 to be its director of analysis and insights.
By 2021, the company was feeling the effects of the COVID-19 pandemic as business was down significantly. In March, it decided to reduce its workforce from between 40 and 50 employees down to 10. It also promoted the worker to the role of associate partner and vice-president of media and analytics.
In October, King Ursa promoted the worker again, this time to the position of executive vice-president, with a salary increase from $220,000 to $300,000.
Maternity leave
In July 2022, the worker went on maternity leave. She trained the employee who had been filling the role of her original position, director of analytics, to cover her duties during her leave.
However, only about a week after the worker began her leave, the CEO contacted her to say that the company had a cash flow problem and he was working out a plan to keep the company going. He remained in contact with the worker over the course of her leave and twice asked her to extend her leave to relieve the cost of employing her. They also discussed the option of a severance package in November, after the CEO and and the president told her that she would be the “easiest to move,” as her maternity leave replacement was handling things.
Following this discussion, the worker sent a dinner invitation to a marketing director at another company, which began a period of time when she actively looked for other work. In February 2023, King Ursa informed the worker that she and the CEO would be put on reduced compensation and the worker would be expected to accept a reduction in salary of $90,000 when she returned.
The worker further extended her leave by being officially reinstated and taking vacation time. She returned to work on April 3, 2023.
On the day the worker returned, the company gave her a letter agreement that reduced her salary to $210,000 and gave her a new title of associate partner and vice-president of medial and analytics – a title that was similar to her original one. The letter also purported to reinstate probationary status. It turned out that they had pulled the template from the worker’s previous employment letter and hadn’t changed anything except for the proposed new salary.
The president also emailed the worker, saying, “Please don’t feel that you’re being dismissed… we are doing what we can to rebuild the agency, culture and keeping all executive team members.”
Constructive dismissal lawsuit
The worker said that she wouldn’t sign the new contract and, on April 15, she advised that she wouldn’t be returning to work. She then sued King Ursa for constructive dismissal.
The court noted that it had been established in previous decisions that “a demotion and a significant reduction in income independently amount to constructive dismissal.”
The court found that King Ursa’s actions breached the fundamental terms of employment. The company attempted to renegotiate not only her salary after she extended her maternity leave at the company’s request, but also her role. Even if the change in title was an accident from using a template, it sent the message that the company was trying to do more than just reduce her salary to help the company’s financial position, the court said.
The court also noted that King Ursa had “a moral and legal duty to craft the agreement in a careful manner that did not go beyond… [the] stated intent of renegotiating the salary.” By failing this duty, the company exerted pressure on the worker to accept the new terms or leave. Although the intention of the letter may not have been to be harsh and vindictive, and it was understandable in the context of King Ursa’s business, the company still had legal obligations to either keep the worker or provide termination notice, said the court in finding that King Ursa constructively dismissed the worker.
King Ursa may have had good intentions and was wise by being open with the worker about its poor financial situation, but it got into trouble when it went well beyond that, according to Pantis.
“The court recognized that the issues were more in the careless drafting [of the letter] than from malice,” she says. “The company should have been really careful with how it was drafting that employment agreement and gotten legal advice, especially in the overall circumstances of the worker being vulnerable just returning from maternity leave - the demotion was significant to her personal sense of self-worth, so any employee would have reacted strongly to that.”
“The court noted that if a legal letter contains alarming information, a reasonable person will feel the heat of added hostility,” adds Pantis. “So in the context of the events and discussions, the letter exerted pressure on the worker to accept the new terms or leave the company.”
Mitigation argument
Although King Ursa argued that the worker had failed to mitigate her damages, the court disagreed, finding insufficient evidence to demonstrate that she could have secured comparable employment. King Ursa had the burden of proving that the worker could have found similar employment with reasonable efforts, while the worker provided evidence of a consulting contract she had secured shortly after her resignation, running from May to August 2023.
Although the worker was only employed with King Ursa for about four years, the court noted that the company promoted her rapidly into a senior position and she performed well. In addition, despite her expertise in marketing analytics, she was only able to land a contract position for a few months, so comparable employment was difficult to find, said the court in finding that 12 months was an appropriate reasonable notice period.
The worker also raised the issue of discrimination on the basis of gender or maternity leave, but the court found no evidence of this. It found that King Ursa took advantage of the worker’s maternity leave “to leverage the reduction of the payroll load,” but other senior employees were also asked to accept pay reductions, showing that the reason for the reduction in the worker’s salary was the company’s financial performance and not related to the worker’s sex or that she took maternity leave.
However, the court noted that the worker’s maternity leave isolated her during this time of upheaval, which “contributed to a need for heightened sensitivity and professionalism” in the discussions about her pay cut and possible severance. King Ursa failed in this regard, particularly considering the “callous and unduly insensitive” way in which it used a template for the letter that made the worker feel pressured to accept the pay cut or leave on her first day back, said the court, commenting that “any employee, especially one whose executive status is closely tied to her identity and self-esteem, would react negatively to a document containing a demotion.”
King Ursa was ordered to pay the worker 12 months’ pay in lieu of notice, minus the amount the worker earned in her contract work during the notice period and plus $40,000 in moral damages, for a total award of $330,615.81.
Employee vulnerability increases risk
Constructive dismissal risks are amplified when employees are vulnerable due to their personal circumstances - such as in this case with the worker being isolated during an extended leave of absence and about to return to work - so open communication is good, as long as it's honest and doesn't put too much pressure on employees to accept unreasonable changes, says Pantis.
“As the court in this decision found, these circumstances contributed to a need for heightened sensitivity and professionalism in the renegotiation of the worker’s compensation,” she says. “Courts will have little sympathy for employers experiencing financial hardship and will still hold them to their legal obligations, reinforcing the need for up-to-date and properly drafted employment agreements.”
See McFarlane v. King Ursa Inc., 2025 ONSC 3553.
