Reducing a generous vacation and sick day entitlement

When an employer wants to cut back on paid leave

Stuart Rudner

Question: If an employer has a greater number of sick days allowed than legislated minimums but have been in place for a long time, is there any liability if they are cut back? How does cutting things like vacation entitlement and sick days compare to reducing pay in terms of liability?

Answer: Most readers will be familiar with the concept of constructive dismissal and the potential liability that can exist when an employer imposes changes to the employment relationship. A constructive dismissal is usually defined as a unilateral and substantial change to a fundamental term of the employment contract. As that definition implies, there are a number of criteria to be assessed.

First, the change in question must be unilateral. If the parties agree upon the change, then there is no basis for the employee to subsequently allege she has been constructively dismissed. Of course, the agreement must be voluntary and legitimate, without duress or misrepresentation.

Second, the change must be substantial. This is, not surprisingly, something of a grey area. There is no absolute rule as to what constitutes a substantial change. As the question indicates, reductions in pay can constitute a constructive dismissal. However, the case law has consistently shown that minimal changes, such as two or three per cent, will not usually trigger a constructive dismissal. Reductions of more than 15 per cent are quite likely to do so. When the reduction is in the range of five and 15 per cent, a court’s decision will depend upon the circumstances.

The final criterion is that the change must be to a fundamental term of the employment contract. Not all changes will trigger a constructive dismissal. For example, in most cases, changing the location of an individual’s desk or office will not constitute a change to a fundamental term. However, relocating an executive’s desk from the executive floor to the mail room would, in all likelihood, have an impact upon her reputation within the organization and is therefore likely to constitute a constructive dismissal. Changing a salesperson’s territory can be a constructive dismissal, as can a change to an individual’s location or hours of work.

With respect to cutting back sick days or vacation time, the analysis would be similar to reductions in pay. Time off is a part of the compensation package. While minor tweaks to the package are usually defensible, significant negative changes to established terms of the employment contract are likely to constitute a constructive dismissal.

Employers that seek to change fundamental terms of the employment agreement are usually well advised to do so either by offering some form of consideration in exchange for the employee’s agreement to accept those changes, or by providing sufficient notice of the changes. The first option involves, effectively, negotiating a new agreement. In exchange for the employee agreeing, for example, to a reduced number of sick days, the employer can offer something of value. This can include a one-time bonus, promotion or additional vacation time. I often advise clients that promotions or pay raises (aside from those that occur automatically) are prime opportunities for the introduction of a new employment contract.

The option of providing notice of a change to the contractual terms also exists, despite the fact that the Ontario Court of Appeal muddied the waters somewhat in the Wronko case a few years ago. It is my view that employers can still impose changes by providing sufficient notice. The amount of notice would be equivalent to that required in the event of dismissal without cause.

Stuart Rudner is a partner in Miller Thomson LLP’s Labour and Employment Group in Toronto. He can be reached at (416) 595-8672 or [email protected].

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