What's so constructive about dismissal, anyway?

'Pivoting' involves a significant change to the way a business operates

What's so constructive about dismissal, anyway?
Stuart Rudner

Way back in 2012, I wrote What is constructive dismissal? for this column. The law has not changed since then, but the world sure has, as has the workplace.

Throughout the pandemic, the ability to “pivot” was a highly glorified skill. Businesses who were able to successfully pivot were lauded for being able to avoid disaster and make the entirely unanticipated circumstances work to their advantage (or at least minimize the damage).

Pivoting, though, involves a significant change to the way a business operates. Regular readers will see big red flags as soon as they hear talk of significant change; after all, isn't the definition of “constructive dismissal” a unilateral and substantial change to a fundamental term of the employment relationship?

So the question becomes: how can an organization make substantial changes to the way in which it operates without triggering a constructive dismissal?

Have a contractual right to make changes

A constructive dismissal occurs when there is a:

  • unilateral,
  • substantial change, to a
  • fundamental term.

Accordingly, there is no risk of constructive dismissal if the change is agreed upon. The best way for an employer to do that is up front, in the contract of employment. For example, if the contract says, “Your primary work location will be at our offices in downtown Toronto, but you may be relocated anywhere within the province of Ontario”, then a move to Vaughan would not be a constructive dismissal because the employee agreed to it.

Similarly, though many employers still face constructive dismissal claims because they put employees on temporary layoff due to the pandemic, strategic employers (or those with strategic HR lawyers) had their employees sign contracts which explicitly allowed the employer to impose temporary layoffs. Many of our clients balked when we suggested including such a clause in their contracts, but they were relieved to know it was there when the pandemic forced them to close or reduce their operations.

Get the employee’s consent

If the affected employee does not have a contract that would allow you to do what you want to, you can always ask them to consent, in which case it will not be a unilateral change. We helped many of our clients obtain the agreement of their employees before temporary layoffs were implemented.

Similarly, if changes to the employment agreement are required, we help our clients put those in place. In many instances, there must be a quid pro quo; the employee must receive something of value (known as consideration at law) in exchange for what they are giving up. Otherwise, the new contract may not be enforceable.

If you don’t have and can’t get the employee’s agreement, then you can mitigate your risk by ensuring that the changes are not “substantial” and/or do not impact a fundamental term of the relationship. That may involve tweaks to their duties rather than a wholesale change to the nature of their role.

Give notice

It is possible to change someone’s contract by providing notice of the change, even if they do not explicitly agree.

However, in order to be legally effective, the notice must be the same as if you were terminating their employment, since you are effectively terminating their current contract of employment. Depending on whether there is an enforceable termination clause in their contract, the notice required will be months and potentially up to two years.

However, once that period of time elapses, if they continue working, the new contract will govern.

Pith and substance

The bottom line is that employers have to remember that employment relationships are legal relationships, and you can’t simply change the terms of an employment contract as you like.  Just as you cannot tell your landlord that you are unilaterally reducing your rent by 50%, you can’t cut someone’s pay in half.

Many businesses implemented temporary layoffs in order to reduce costs and exposed themselves to liability which will drastically exceed any savings they achieved. To properly pivot or make changes, employers should ensure that they have the right to do so. While it may sound self-serving, that is where the advice of an HR lawyer can save you a lot of money.

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