Alberta Court Rules 20% Reduction in Compensation in Response to COVID Pandemic = Constructive Dismissal

Author: Chris Drinovz, Partner, KSW Lawyers Employment & Labour Group (cdd@ksw.bc.ca)

More Wage Cut discussion covered in our 2020 Return to Work After Covid-19: 5 Critical Questions to Ask Article.

CAN AN EMPLOYER IMPOSE A 10% WAGE CUT

If employers simply want to unilaterally impose a wage cut then they run the risk of creating a constructive dismissal. A constructive dismissal will occur when an employer unilaterally imposes a fundamental change to employment terms or otherwise changes fundamental terms. The courts ask whether the conduct evinces an intention on the part of the employer to no longer be bound by the employment contract.

While pay and benefits are clearly central to the employment relationship it is clear that some reductions in remuneration will not constitute a constructive dismissal. In Pavlis v HSBC Bank Canada 2009 BCSC 498 the court considered how big a decrease in pay would have to be to constitute a constructive dismissal. Generally the court stated that a reduction in salary of up to 10% would not be a fundamental breach; a reduction 14—17 % may amount to a fundamental breach if another significant or substantial unilateral change occurs and any reduction beyond 20% will on its own will be a fundamental breach.

Although these cases were decided in a Pre COVID world, early cases summarized below and in our recent 2021 articles indicate the courts continue to be more sympathetic to employees although these changes were necessitated in order to continue in business.

If the change does not constitute a constructive dismissal an employee may have a right to claim wages under the Employment Standards Act which now provides that claims can go back 12 months.

Employers should not take any chances in our view if they can get the employees to accept the reduction. Such an agreement in writing may well constitute a defence to a constructive dismissal claim. Further even in the absence of a written agreement if the employee continues on in the employ under the altered terms without complaint then likely she will have been found to have condoned the change.

Finally if the employee refuses to accept the reduction in pay then we recommend employers continue to offer that position as the employee may be bound to accept the new pay structure in mitigation of her damages.

2021 CASE LAW UPDATE

In a recent decision Kosteckyj v Paramount Resources Ltd, 2021 ABQB 225, the Alberta Justice found that the employer’s implementation of a COVID-19 related Cost Reduction Program imposing a salary reduction of 10%, a suspension of the RRSP contribution valued at 6% of the employee’s salary, and the “delay/cancellation of the 2019 Bonus Program” amounted to constructive dismissal. The total reduction in compensation was between 16.6 and 20%. The employee was a 47 year old Engineer who had worked with the employer for over 6 years, and was awarded 9 months notice.

An interesting aspect of the case was that the employee did not actually resign but was expressly terminated 25 days into the Cost Reduction Program. The issue of constructive dismissal arose in the context of assessing damages. In particular, the employer argued that the employee’s damages during the notice period should be based on her “post-cut” reduced income. The judge disagreed, finding that even though the employee had never actually resigned, it was a constructive dismissal which commenced at the time of the breach by the employer. Therefore, the employee’s “pre-cut” income was used. Further, the Court found that even though 25 days had passed after the compensation cut with no action by the employee, this was not long enough for the employee to have been deemed to have condoned the change, “in the turbulent economic conditions”.

Note to Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter or drafting of workplace vaccination policy, please contact Chris Drinovz at cdd@ksw.bc.ca.

Chris Drinovz is an experienced employment and labour lawyer in Abbotsford, Langley, Surrey & South Surrey, a Partner at KSW and Head of the Employment & Labour Group at KSW Lawyers (Kane Shannon Weiler LLP). Chris has been assisting local businesses with workplace issues since 2010. His expertise covers all facets of the workplace including wrongful dismissal, employment contracts, workplace policies, and WorkSafeBC matters, including occupational health & safety. Chris is on the Executive of the Employment Law Section of the Canadian Bar Association BC, and a Director for Surrey Cares and Greater Langley Chamber of Commerce.

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