Employment relationships are legal relationships, and contracts and policies should be used strategically
Do you remember that episode of Friends where Ross buys a new couch and decides he does not need to pay a delivery fee and can carry it up to his apartment?
Spoiler alert: this was a bad idea.
Ross ended up screaming “Pivot!” several times as he tried to navigate the couch up the stairs with the help of his friends, Rachel and Chandler. The iconic reference was thus born: “Pivot! Pivot! Pivot!”
Obviously, Ross was being penny wise and pound foolish. He should have paid the delivery fee and avoided the hassle altogether.
Now you might be wondering – “I am here to find out how to avoid constructive dismissal. What does this have to do with constructive dismissal?”
Since the advent of the COVID-19 pandemic, “pivot” has been a constant refrain within the business and HR worlds, as organizations struggle to adapt to frequently changing realities.
Most readers will know that changing the employment relationship can constitute a constructive dismissal. So, how do you pivot without risking liability?
Before we get there, it is important to briefly outline the concept of constructive dismissal.
What is constructive dismissal?
As you may know, a constructive dismissal occurs when there is a unilateral and substantial change to fundamental terms and conditions of employment. Not every change will constitute a constructive dismissal, and every case will have to be assessed based on its own particular circumstances. Minor or relatively inconsequential changes will not give rise to a constructive dismissal, but courts are wary of allowing employers to impose drastic changes.
In addition, what is “fundamental” will vary depending upon the facts of a particular case. An employee’s compensation, role and duties will almost always constitute fundamental terms of the employment relationship. But other things can as well. For example, being subjected to a toxic work environment, including an employer’s failure to address bullying or harassment in the workplace, can constitute a constructive dismissal.
Further, an employee cannot simply tolerate the change and then complain later on — the employee must make their objection known within a reasonable time.
If an employee is found to have been constructively dismissed, an employer’s obligations toward that employee are equivalent to a without cause dismissal, without the dismissal part. That is, the employee would be entitled to a severance package as if they have been dismissed outright. The employee may also be entitled to additional damages if they can establish that the employer engaged in bad faith conduct in the manner of dismissal, workplace harassment, etc.
So how do you make changes, as an employer, without attracting constructive dismissal claims?
How to avoid constructive dismissal
As we usually advise our clients, it is important to remember that employment relationships are legal relationships, and accordingly, you should use contracts and policies strategically.
As noted above, to establish constructive dismissal, the employee must show that the change was unilateral. Accordingly, if you obtain the employee’s written consent prior to making any substantial changes, or potentially substantial changes, then you can use that as evidence to show that there was no constructive dismissal of employment.
In particular, employers would be wise to prepare contracts that provide the organization with flexibility to make changes and clearly noting that it will not constitute a constructive dismissal. Workplace policies should also contain clear wording allowing the organization to make changes from time to time.
If you want to pivot and don’t have such contractual protection, consider obtaining the employee’s written consent before implementing the change. For example, you can provide a new agreement to the existing employee and offer fresh consideration (i.e. something of value, such as a signing bonus, promotion or raise) in exchange for signing the new contract. Alternatively, you can provide a separate letter outlining the proposed change and noting that all other terms and conditions of the existing employment agreement remain intact, and obtain the employee’s signature before imposing the change.
Throughout the pandemic, we have helped clients to implement changes, including drastic ones like layoffs, without liability. The key is having clear evidence of the employee’s agreement, so that the changes are not unilateral.
Without the employee’s agreement, you can make changes with appropriate notice. However, the period of notice needed for an employer to impose a substantial change is the same amount of notice needed for an employer to terminate an employee’s employment, which can be lengthy. That is not really pivoting, but gradually changing.
And finally, it is important to seek legal advice from an employment lawyer before doing anything that may have legal implications.
Ross should have used the delivery service before trying to pivot. You should take advantage of legal advice before pivoting. Otherwise, any cost savings can be greatly overshadowed by the unforeseen costs.