Canadian Employment Law Today

May 20, 2020

Focuses on human resources law from a business perspective, featuring news and cases from the courts, in-depth articles on legal trends and insights from top employment lawyers across Canada.

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Answer: This is an issue we are dealing with quite often these days. As set out in the answer to the first question above, a constructive dismissal occurs when there is a unilateral and substantial change to a fundamental aspect of the employment rela- tionship or contract. The Supreme Court of Canada in Potter v. New Brunswick (Legal Aid Services Commission) stated that constructive dismissal may arise where the conduct of the employer shows an intention to no longer be bound by the em- ployment contract and the employee treats that conduct as a repudiation of the contract. An employee can establish constructive dis- missal in one of two ways: They may show unilateral breach by the em- ployer, which substantially alters an essential term of the contract by establishing: i) on an objective basis, whether there has been a uni- lateral breach by the employer and ii) if so, at the time of the breach, whether a reasonable person in the same circumstances as the em- ployee would have felt that the essential terms of the employment contract had been substan- tially changed; or the employee may establish a course of conduct that, when viewed in the circumstances, would lead a reasonable person in the same situation as the employee to con- clude that the employer no longer intended to be bound by the terms of the contract. Compensation is a fundamental element of the relationship. The question to address will be whether the change is enough to be substantial. Contrary to popular belief, there are no absolute rules in this regard. It is fair to say that a nominal change, such as a five-per- cent decrease, is unlikely to rise to that level. However, every case must be assessed based on its own particular circumstances. A 10-per- cent decrease may impact someone earning $40,000 per year far more than someone earn- ing $4 million per year, even though the abso- lute amounts are smaller. The safest way to avoid or reduce liability for changes to the employment relationship is to build discretion to make changes into the contract. The next best alternative is to obtain the employee's agreement to the change, rather than imposing it. Another strategic approach, if pay cuts must be imposed, is to ensure that they are relatively nominal. We are working with many clients in the current pandemic to implement reductions in hours and/or wages. Where possible, the cuts are kept to a minimum. In all cases, we rec- ommend that the representatives of the orga- nization speak with the impacted employees, explain the need for the pay cut and get their buy-in. Then they can obtain a signed agree- ment documenting the employee's consent. Of course, it certainly helps when they can say that the management and ownership are also making a sacrifice. Unilaterally imposing substantial pay cuts is the riskiest approach and can easily result in a claim. For more information, see: • Potter v. New Brunswick (Legal Aid Services Commission), 2015 SCC 10 (S.C.C.). Stuart Rudner is the founder of Rudner Law, an employment law firm in Markham, Ont. He can be reached at stuart@rudnerlaw.ca or (416) 864-8500. The best alternative is to obtain the employee's agreement to the change. Answer: Generally speaking, a constructive dis- missal occurs when there is a unilateral and sub- stantial change to a fundamental aspect of the employment relationship or contract. The Su- preme Court of Canada in Potter v. New Brunswick (Legal Aid Services Commission) stated that con- structive dismissal may arise where the conduct of the employer shows an intention to no longer be bound by the employment contract and the employee treats that conduct as a repudiation of the contract. An employee can establish constructive dis- missal in one of two ways: They may show unilateral breach by the em- ployer, which substantially alters an essential term of the contract by establishing: i) on an ob- jective basis, whether there has been a unilateral breach by the employer, and ii) if so, at the time of the breach, whether a reasonable person in the same circumstances as the employee would have felt that the essential terms of the employment contract had been substantially changed; or the employee may establish a course of conduct that, when viewed in the circumstances, would lead a reasonable person in the same situation as the employee to conclude that the employer no longer intended to be bound by the terms of the contract. With respect to the conduct or change in ques- tion, it will not be a constructive dismissal if the employer had the right to impose it. A current ex- ample that is relevant during the COVID-19 pan- demic is the issue of temporary layoffs. As the law currently exists, laying someone off temporarily would constitute a substantial change to the very basis of the agreement. However, it would not be a constructive dismissal if that agreement gives the employer the right to do so. Some have argued that, in the context of this pandemic, it would not be fair to apply a "pre- COVID-19 lens" to this unprecedented situa- tion, and it is possible that a court will agree in the future. For the purpose of this discussion, the relevant point is that, to impose a substantial change, there must be an existing right. However, it is also true that an employee who believes that they have been constructively dis- missed must object to the change in a timely manner. Failure to do so will lead to a conclusion that they agreed or acquiesced. They do not have to do so immediately and are entitled to take a reasonable time to assess the situation and the changes, and then proceed. But if they wait for too long, they will have a difficult time pursuing a claim. Courts expect that an employer will be put on notice of the concern and given an op- portunity to remedy the situation, which cannot occur if they are not made aware of it. So, the em- ployee's silence or failure to act can negate their potential claim. 2 | May 20, 2020 May 20, 2020 Ask an Expert Have a question for our experts? Email jeffrey.smith@keymedia.com BY STUART RUDNER, RUDNER LAW, TORONTO with Stuart Rudner Employee silent on significant change to job duties Question: Does an employer have any liability for constructive dismissal if an employee says nothing about a significant change to their job duties and continues working? Making pay cuts for business reasons Question: If an employer needs to reduce an employee's salary for business reasons, what can it do to avoid or reduce liability? Canadian HR Reporter, 2020

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