Question: Can an employer avoid the risk of constructive dismissal or the need for fresh consideration if an employment agreement states the duties and nature of an employee’s position can change according to the employer’s needs?
Answer: The answer is yes, an employer can provide for changes in an employee’s position in the employment agreement. The challenge, of course, is accurately anticipating and stipulating the changes in advance so they are covered by the agreement.
Following the 2015 Supreme Court of Canada decision in Potter v. New Brunswick Legal Aid Services Commission, constructive dismissal most commonly results from a unilateral change by the employer that substantially alters an essential term of the contract.
Alternatively, it can result from a course of conduct by the employer that, taken together, demonstrates that the employer no longer intends to be bound by the employment contract.
However, if the employer and employee agreed that the employer has the ability to change specific aspects of the employment relationship, and those contemplated changes are reflected in the employment contract, then that change is not a unilateral act by the employer and therefore not constructive dismissal.
In Potter, the court said: “If an express or an implied term gives the employer the authority to make the change… the change is not a unilateral act and therefore will not constitute a breach. If so, it does not amount to constructive dismissal.”
Having said that, terms of this nature need to be crafted with care. Courts expect that any agreed-upon future change would not be so broad as to be meaningless.
Vaguely permitting an employer to change terms and conditions “according to the employer’s needs” would likely fall into that category. Therefore, it would be helpful to outline possible changes in the agreement, as suggested in the question.
It would similarly be helpful to outline possible changes in a policy, assuming that policy was incorporated into the contract. If not, any such change would likely be unilateral, although the policy could still be helpful in the determination of whether the change was so substantial as to constitute constructive dismissal.
We know that changes to the employment relationship that attract claims of constructive dismissal include changes to an employee’s job title and responsibilities, reporting relationships, and compensation structure. If those changes are contemplated by the employer in advance, they could be specified in the employment agreement as examples of acceptable changes that would not be considered constructive dismissal.
Ultimately, a court would scrutinize the intent of the parties at the time the agreement was entered into. For example, even if the employment agreement generally stated the employer may make changes to the compensation structure from time to time, there is a risk that a court may find that while a certain degree of change was contemplated, at a certain point an actual change to compensation would be so substantial that it cannot be said to have been contemplated and agreed to by the parties.
A change that resulted in the reduction of an employee’s six-figure compensation to an amount near minimum wage is an extreme but obvious example.
The more clear and specific the term providing for changes to the employment relationship, the more likely an employer can rely upon it to fend off an allegation of constructive dismissal.
Brian Johnston is a partner at Stewart McKelvey in Halifax. He can be reached at (902) 420-3374 or email@example.com.
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