Consideration, employment changes, and constructive dismissal
Question: Are there circumstances where a full-time employee’s salary can be legally decreased?
Answer: Generally speaking, employers do not have the right to unilaterally change an employee’s salary or other terms of her employment. It is important for employers to remember that the employment relationship is based upon a legal contract, regardless of whether that contract is written or verbal. Just as you would not “advise” your landlord that you have decided to reduce your rent payments, you should not simply advise your employee that you have cut their salary.
Any unilateral and substantial change to a fundamental aspect of the employment relationship will constitute a constructive dismissal. Compensation is undoubtedly a fundamental element of the employment relationship, so the only real issue is whether the proposed salary reduction is “substantial.” There are no absolute rules in this regard, but generally speaking, any decrease of more than 10 per cent is likely to be offside. Lesser decreases may be, depending on the circumstances.
Of course, if the employee voluntarily consents, then the change is not unilateral and therefore not a constructive dismissal.
Stuart Rudner is the founder of Rudner Law, an employment law firm in Markham, Ont. He is the author of You’re Fired: Just Cause for Dismissal in Canada published by Carswell, a Thomson Reuters business. He can be reached at [email protected] or (416) 864-8500.
