When relocation turns into litigation

When relocation packages go sideways, the fallout can be costly — not just in severance dollars but in litigation, morale and reputation.

A recent Ontario decision involving a Loblaw manager shows how quickly a seemingly straightforward move can become a legal flashpoint when housing and settlement expectations diverge.

In that case, the employee had moved from Winnipeg to Ottawa at the company’s request and was terminated before closing on a new home; his effort to reopen a severance deal after his house purchase collapsed was rejected by the court, which enforced the original settlement.

For employers, the Loblaw case is a reminder that relocation touches multiple risk points at once: constructive dismissal, contract wording, financial incentives, and the way negotiations are documented.

“Relocation is a headache — you shouldn't do it lightly,” says Brandon O’Riordan, vice-president of Bader Law in Oakville, Ont.

Working notice and employee relocations

Ideally, the more notice given to employees, the better, given the potential upheaval involved with a major relocation — but there could be a morale problem with “dead men walking,” says O’Riordan.

In addition, many employees may look for another job well ahead of the relocation, leaving the employer with few people there to help with the transition, he says.

“There's a variety of ways to address this problem. It really depends on what risk tolerance you have as an employer: Are you more prepared to risk a higher severance cost, or are you more prepared to risk a bleed of talent in the lead-up to moving if you give too long a notice period?”

If an employee chooses not to relocate, they will be terminated without cause, with notice based on the contract or common law, says O’Riordan.

“By giving advance notice, you can reduce your liability to them.”

But it can be tricky finding that balance, and risky, says Richard Johnson, co-founder and partner at Ascent Employment Law in Vancouver.

For example, an employer can tell an employee they must agree to relocate in 12 months, or accept that their termination is ending, with one-year’s notice.

“You're never usually going to get the full productivity when it's a one-sided termination like this. You're just going to have to face decreased morale, loss of productivity. And then others in the team might also take this, optically, as a bad sign if the business is imposing a big move like this.”

Sweetening the pot to make the move

If an employee is keen to retain key talent for the relocation, they may offer additional perks such as relocation costs — realtor’s fees, legal fees for a house sale or purchase, transportation costs — or a signing bonus or inconvenience bonus, or free trips back home each year.

In addition, employers can provide some kind of reassurance, such as promising to bring the employee back to the existing office if things don’t work out, or providing a more generous severance, “something larger than what they otherwise would have been entitled to,” says Johnson.

“Hopefully, by explaining to the employee how well-thought-of they are and how much they're needed by the organization and that you care about them landing softly there in the new location, that will help them feel like they're a part of the decision that's not foist on them.”

Employers shouldn’t be afraid to “sweeten the deal” to entice people to relocate, says O’Riordan, especially considering the replacement costs for employers if they must find new employees in the new location.

However, he warns that relocation bonuses are going to be considered wages, so these will be subject to things like vacation pay which is “poorly understood by almost everybody at all levels.”

Plus, employers don’t want employees accepting these incentives, relocating to the new location and then quitting soon after. So, often the perks are contingent on the individual agreeing to move and work for the employer for a minimum amount of time, as a retention tool, says O’Riordan.

“You can't stop them from leaving… But you can have a repayment obligation of part or all those moving expenses for a certain period of time.”

Risks of discrimination

In choosing which employees they would like to relocate, employers should be careful about moves that lead to claims of discrimination; for example, offering a relocation package to a single person instead of someone with a family and young children.

“On the one hand, that’s logical, but on the other hand… it can be family status discrimination because you’re making a selection on who you provide this opportunity to based on their family status — and that’s where they could make a discrimination complaint,” says Johnson.

As a result, HR should make sure to do the paperwork to back up its decision-making for selecting employees, he says. That means documenting the metrics, such as performance criteria, revenue-generation considerations and job requirements.

Constructive dismissal and employee relocations

Both employment lawyers say a central legal risk in forced relocations is constructive dismissal — essentially, when the relocation amounts to a unilateral, substantial change to the terms of employment.

In assessing whether a relocation has become a constructive dismissal, it’s highly contextual, says O’Riordan.

“It depends not only on the actual truth of the move, but how the move will affect your employees,” he says. “It has to be something that goes so far that it fundamentally alters the term of employment. So, having to move to an entirely different city, like from Toronto to Ottawa.”

If it’s moving an office location in Ontario from Burlington to Mississauga (roughly 40 kilometres), that may not be too arduous if most of the employees drive cars; but if the workers make a lower salary and are dependent on public transit, that could be considered a constructive dismissal, he says.

“It's so context-specific, and it really comes down to ‘What is the effect of this move on the workforce? Is this something that they can legitimately claim has... upended their life to the point that they're not working the same job anymore?’”

And giving some kind of ultimatum: “Move or else…” is not a good idea, says Johnson.

“If they say, ‘Our way or the highway,’ that's going to be seen as a unilateral change. The employee's not agreeing, it's being foist on them,” he says.

“And then what are the damages that would flow from that? So, that becomes a big problem.”

That’s why Johnson advises employers to have very candid conversations with employees about the situation — and to be prepared for the response of “Thanks but no thanks” — and then have a plan B.

New employment agreement for new location

As seen when many employees temporarily relocated during the pandemic, and ended up staying permanently, there were risks to not having a new employment agreement as part of the move, says Johnson.

“The contracts that were all drafted were drafted under the original provincial jurisdiction — they're all out the window because the person's in a different jurisdiction. [Employers] didn't usually sign people up for WCB coverage in the other province that they've moved to… Or if they were even outside of the country, there were local laws that the employer didn't even become aware of.”

That can lead to a lot of unknowns, he says, which is why drafting a new employment agreement or adding an addendum to the original contract is advisable with a relocation.

“Otherwise, you end up offside on a few different vantage points. And, before you know it, you might be invalidating severance clause and not having workers’ comp coverage.”

O’Riordan agrees that if the jurisdiction of your employee's employment will change, they will be subject to new and different employment laws, he says.
“So, if your employment contracts refer to the Ontario statute and you move the whole kit and caboodle to Alberta, those things aren't going to work anymore.”

It’s important to have the agreement in writing and for both sides to benefit from the change for it to be valid, he says.

“You can build things like the moving expenses program into that new contract, and that can be part of the consideration the employee's getting as part of choosing to accept this new term of employment.”

Misclassifying relocated individuals

Another important consideration for employers? Deciding to reclassify a person as an independent contractor with the move.

“It does happen more than you would think,” says Johnson, who recommends involving the employee in that decision, as a stakeholder, if they see the benefit of such a change.

“Otherwise, if nothing really changes, they're likely always going to be considered an employee anyways or a dependent contractor so I don't think it's this great panacea that a lot of companies think it is. But, it’s certainly an option, assuming that you can put in all of the true indicia of a contractor relationship.”

There’s the risk that Employment Standards or the Canada Revenue Agency may say the label as “window dressing” when the person is called a contractor, says Johnson.

“By that, I mean do you have one person in Manitoba performing sales duties as a contractor and you've got 19 other salespeople in your home province that are doing the exact same functions who are employees? Is that somehow a way to try to get around the legislation and the entitlements that it increases the likelihood they'll be found to be an employee?

“If they're doing the same job, they should be the same status.”

As a best practice, the employer should still give notice of the termination of the employment relationship and then commence the independent contractor relationship, he says.

Most of the time, employers are trying to make people independent contractors even though they want the same level of control, says O’Riordan.

“It's a risky game only because if all you're doing is moving them to a new place and then turning them into contractors, but everything else about their work for you is the same, they're not really contractors.”

How to handle employee terminations

As seen with the Loblaw case, the termination of a person’s employment after they have relocated is not always easy.

For instance, if they had an Ontario contract and moved to B.C., that potentially invalidates the severance clause if it refers to Ontario legislation, which means you’re in common law territory, says O’Riordan.

“But even under common law, you're taking into account the fact that they've uprooted, they've moved, they will likely take longer for a job search, simply because they don't know of all the opportunities and businesses in that local jurisdiction. And I do suspect that a judge, knowing all the facts, would probably say... that a longer notice period is warranted. And so it increases the damages.”

Those damages could also include the costs of relocation, upwards of $20,000 or $30,000, he says: “If it’s a reasonably foreseeable expense flowing from the termination, that may very well be part of the damages that the court awards under common law.”

The severance liability for an employer could be higher because the employee uprooted their life and career to make the move, agrees O’Riordan.

“If you're smart, you've put them on an enforceable termination clause, so really that stuff won't matter — their common law entitlements will be limited to whatever the contract says they get, and that'll be that.”

It also depends on the location of the new location: A large city, for example, would mean an individual could find alternative employment more easily than a more remote spot, he says.

“It depends on the jurisdiction you choose and the economic circumstances of that place. But, really, you adjust for that risk by fixing your contracts before they make the move.”