Canadian Employment Law Today

with Tim Mitchell Ask an Expert NORTON ROSE FULBRIGHT CALGARY Have a question for our experts? Email Jeffrey.R.Smith@thomsonreuters.com Canadian HR Reporter, a Thomson Reuters business 2016 2 | October 12, 2016 Canadian HR Reporter, a Thomson Reuters business 2016 Answer: Signifi cant changes to an employ- ee's contract of employment can constitute constructive dismissal if implemented uni- laterally by the employer without proper notice. e purpose of providing notice of an intended change in terms of employ- ment is to avoid the possibility of the change being treated by an aff ected employee as a constructive dismissal. A number of fac- tors come into play in determining whether a particular unilateral change constitutes a constructive dismissal. First, it is necessary to determine whether the change would amount to a breach of the employment contract. If the change would breach a contractual term, the next step is to assess whether the change is one that would substantially alter an essential term. It is not always easy to determine the terms of a contract of employment when they are not set out in writing. Not every benefi t con- ferred by an employer on its employees is a term or condition of employment, much less an essential term. Similarly, not every change, even to an essential term, will be considered substantial. e test is whether a reasonable person in the same situation as the aff ected employee would feel that an essential term of the contract was substantially changed. If an employer has an express or implied right to implement a change to a longstand- ing rewards and recognition program, there will be no breach of contract and no require- ment to provide notice even if it is substan- tially changed, regardless of the length of time the program has been in place. How- ever, if the employer has never claimed or exercised a right to alter a longstanding pro- gram, a contractual right to make unilateral changes might be more diffi cult to prove. Assuming that the evidence suggested a particular rewards and recognition program was a term of employment, it would then be necessary to address the question whether it was an essential term. e answer to this question would depend very much on the character of the program. A program that provided substantial fi nancial bonuses or re- wards of signifi cant value would be regarded diff erently than one that off ered an employ- ee the opportunity to take an afternoon off or select a piece of company-branded lug- gage after fi ve years of service. e case law provides some guidance on the consequence of changes to status and compensation related benefi ts. In Hamilton & Olsen Surveys Ltd. v. Otto, the employer ceased its practice of matching employees' RRSP contributions and reduced the employees' vacation from six weeks to four weeks in response to dramatically re- duced revenues. e value of the rollbacks was between approximately 6.5 per cent and eight per cent of the employees' compen- sation. e Alberta Court of Appeal held the employees had not been constructively dismissed. If the pension contributions and vacation entitlements were terms of the employment contracts, their cessation was relatively minor and readily compensable by damages. In the court's view, however, the employer had simply made a periodic adjustment in compensation in accordance with a practice that had traditionally marked its treatment of the collateral benefi ts be- tween the employer and its employees. On the evidence, employee compensation levels had always depended on the current for- tunes of the company. In Piron v. Dominion Masonry Ltd., the employer discontinued a variable bonus that it had paid to the employee in previous years on top of his hourly wage, again relying on a downturn in the economy to justify its ac- tion. It was the employer's position that the payment was discretionary and it was en- titled to revert to paying the employee only his hourly wage. e trial judge disagreed, fi nding that the employee had a contractual right to negotiate for an annual bonus that refl ected his responsibilities. e discontin- uance of that right had substantially altered his terms of employment, changed his sta- tus within the company, and constituted a constructive dismissal. e appellate court upheld the fi nding of constructive dismissal, noting the trial judge's fi nding the change was not just quantitative but also involved a change in the employee's status. However, it disagreed with the trial judge about the na- ture of the employment term. e British Columbia Court of Appeal held that the em- ployee had a contractual right to insist not just on a right to negotiate for annual recog- nition bonuses, but on the annual bonuses themselves. In Pathak v. Jannock Steel Fabricating Co., the employer removed a negotiated bonus given to the employee together with some of his new responsibilities. e trial judge reasoned that the employer had complied with its obligation to pay the "vast majority of compensation" owed to the employee and found that no constructive dismissal had occurred. e Court of Appeal overturned that fi nding. It found that the bonus was ne- gotiated by the employee as a means of dis- tinguishing his position from those of other employees. It was a term of the employment contract and a separate and discrete obliga- tion unrelated in any way to the removed responsibilities. A reasonable person in the employee's position would have regarded the unilateral termination of the bonus as a substantial change amounting to construc- tive dismissal. e loss of a management bonus that was about fi ve per cent or less of the employee's total compensation and confi rmed his loss of "management" status did not amount to a constructive dismissal in Robertson v. West Fraser Timber Co., where neither the amount nor receipt of a bonus was guaranteed. In Hlewka v. Moosomin Education, the employer's non-compliance with its con- tractual promise to deduct health plan contributions and pension payments and to make employer pension contributions of three per cent of the employee's salary was a breach of contract entitling the employee to damages. It was not constructive dismissal. Some courts have attempted to quantify a range of economic loss likely to constitute constructive dismissal. Pavlis v. HSBC Bank Canada, suggested that any reduction under 10 per cent of average salary would likely not be considered a constructive dismissal, with- out some other signifi cant unilateral change. It is certainly not possible to say that a lesser reduction would never constitute a constructive dismissal and the courts often reach diff erent conclusions on the same facts as the cases above illustrate. However, assuming that the value of the rewards and recognition program was relatively insig- nifi cant in fi nancial and/or status terms, it is unlikely that it would be considered a signifi - cant enough change to justify an employee treating its loss as constructive dismissal if proper notice of the change was not given. For more information see: • Hamilton & Olsen Surveys Ltd. v. Otto, 1993 CarswellAlta 108 (Alta. C.A.). • Piron v. Dominion Masonry Ltd., 2013 Car- swellBC 1028 (B.C. C.A.). • Pathak v. Jannock Steel Fabricating Co., 1996 CarswellAlta 616 (Alta. Q.B.). • Robertson v. West Fraser Timber Co., 2009 CarswellBC 1179 (B.C. S.C.). • Hlewka v. Moosomin Education, 2007 Car- swellSask 699 (Sask. Prov. Ct.). • Pavlis v. HSBC Bank Canada, 2009 Car- swellBC 939 (B.C. S.C.). Tim Mitchell practices management-side labour and employment law at Norton Rose Fulbright in Calgary offi ce. He can be reached at (403) 267-8225 or tim.mitch- ell@nortonrosefulbright.com. Changes to longstanding recognition program Question: If an employer significantly changed a longstanding rewards and recognition program for employees, does it have to provide a certain amount of notice? Could such a change be considered a change to employees' jobs?

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