Returning employees from layoff with reduced pay

If employees were temporarily laid off during the pandemic, can the employer bring them back at reduced pay until revenues reach pre-pandemic levels?

Returning employees from layoff with reduced pay
Stuart Rudner

Question: If employees were temporarily laid off during the pandemic, can the employer bring them back at reduced pay until revenues reach pre-pandemic levels?

Answer: It depends. Contrary to popular belief, employers do not automatically have the right to lay off employees temporarily, even due to an unexpected downturn in business. Doing so can constitute a constructive dismissal. In light of the COVID-19 pandemic, several provincial governments amended their employment standards legislation such that temporary layoffs would be deemed to be an Infectious Disease Emergency Leave (IDEL) for the purpose of the legislation until at least July 3, 2021. However, temporary layoffs can still constitute constructive dismissal under the common law.

A constructive dismissal is a unilateral and substantial change to a fundamental term of the employment relationship, whereas a temporary layoff is clearly a substantial change and any reduction in hours or wages will have to be assessed to determine whether it meets that threshold. There are many myths out there, but, in reality, there are no absolute rules. Every case will have to be assessed based on its own particular circumstances. Nominal changes will not constitute a constructive dismissal, and, given that there is an inherent discretion in this analysis, some courts will undoubtedly be reluctant to penalize employers for relatively small pay cuts when the business itself was in dire financial straits.

If the employer is looking to make a change that may be substantial, even if temporarily, it would be smart to seek the employee's consent before implementing the change in order to reduce the risk of a constructive dismissal claim.

Employees will be allowed a reasonable period of time to assess the suitability of any changes. After that, they will be deemed to have accepted the changes and lose their right to claim constructive dismissal. A prudent employee will explicitly advise the employer that they are assessing the changes in good faith and should not be deemed to have accepted them while they do so. Of course, they cannot assess the changes indefinitely, although there is no absolute rule as to how long they have to do so.

If the employee either accepts the changes or waits too long to object, then there may be no issue and their employment will simply continue under the new terms. However, if the employee objects, then a decision must be made: The employer can either proceed with the changes or return to the previous terms of employment. If they choose the latter, then the issue is at an end.

If the employer decides to proceed with the changes, in some cases, it will be strategic to give advance notice of the proposed changes. Doing so can reduce the employer’s potential liability, since this notice can effectively count as notice of termination. To do so, the notice should clearly state that if the employee rejects the new terms, their employment will terminate at the end of the notice period. In the meantime, the employment relationship will continue with the status quo. The employer should then provide a clear offer of re-employment on the new terms to commence after the end of the notice period. Since employees have a duty to mitigate their damages, any potential recovery with respect to a constructive dismissal claim will likely be reduced if they reject the offer, unless they can show it would be degrading or humiliating.

The bottom line is that employers do not have carte blanche to change the employment relationship. However, by understanding the law of constructive dismissal, it is possible to minimize liability when implementing changes.

Stuart Rudner is the founder of Rudner Law, an employment law firm in Markham, Ont. He can be reached at [email protected] or (416) 864-8500. This article was co-authored by Nadia Zaman, an associate at Rudner Law. She can be reached at (416) 864-8503 or [email protected]

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