Canada: Constructive Dismissal And You Part 2: Reductions In Compensation

A question that both employers and employees commonly have is "what counts as constructive dismissal?" As detailed in our previous blog post linked below, there are many types of unilateral changes that can result in a constructive dismissal: https://www.kswlawyers.ca/blog/constructive-dismissal-unexpected-consequences-of-changes-to-the-employment-relationship

One of the more common scenarios that we deal with however is where an employee has been constructively dismissed as a result of changes to their compensation. This is, of course, more obvious when an employer has reduced the employee's salary (unsurprisingly, this is usually constructive dismissal).

Where it gets murkier is in dealing with compensation structures such as commissions, performance-based bonuses, or similar arrangements where an employee's compensation can vary from month to month.

In short, if an employee's compensation structure is changed in a way that reduces or potentially reduces their pay, this will often be considered constructive dismissal. For example, if an employee is moved from their sales territory to a new territory that has historically performed much worse, this would likely be considered constructive dismissal.

Similarly, if an employer unilaterally changes the way that the employee's compensation is calculated (e.g. by implementing a new formula which might result in the same pay, but makes achieving that level of pay more challenging), this could also be a form of constructive dismissal.

Conclusion

As emphasized in our other blog post, constructive dismissal (like many legal issues) is highly fact-specific and varies case by case. Employers should consult with legal counsel before making significant changes to the employment relationship, to ensure that they are not inadvertently terminating an employee and exposing themselves to potentially significant claims for constructive dismissal.

Employees who believe that they have been subject to a constructive dismissal should seek legal advice as soon as possible to avoid inadvertently condoning (i.e. accepting) a fundamental change to the employment relationship, and to determine if the change is sufficient to constitute constructive dismissal.

It is important for employees to seek legal advice before resigning from their employment as an unsuccessful claim of constructive dismissal will result in the employee receiving no severance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.