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Employee Contract: Can you make changes?

Can changing the terms of a worker's employment land you in a lawsuit?

Employee Contract: Can you make changes?

Being able to respond to changes in your business is essential to the success of your company. Often that involves reassessing your employment needs and altering terms and conditions of employment where necessary. However, some changes may unwittingly plunge you into a wrongful dismissal/constructive dismissal lawsuit.

Employers simply may not be at liberty to make substantial changes to the essential terms and conditions of an employee's contract of employment. When an employee accepts employment with a company, they agree to certain terms and conditions of employment which they expect will not change, unless for the better, without their approval. Our courts have consistently held that when an employer significantly alters an essential term of the employment agreement and the employee does not agree to the change, the employer has terminated the employment relationship. The employee has a right to walk away from the job with a severance package. Below are examples of actions that have resulted in successful constructive dismissal claims:

1. A demotion

Although not every demotion will result in a constructive dismissal, generally, a loss in status and prestige along with a change in employee's duties will constitute a constructive dismissal. This may be the case even if the employee's salary and benefits remain unchanged.

2. A Layoff

Most Employment Standards legislation throughout Canada allow for a temporary lay off in response to a lack of work. However, a layoff of even one day may constitute a constructive dismissal if an employee's contract does not provide for a layoff. Most employers mistakenly believe that complying with employment standards legislation on lay offs insulates them from a lawsuit based on a layoff. Only a carefully drafted agreement can do that.

3. A Reduction in Salary

This change is the source of much contention because it hits the employees in their pocket books. Most employees are not willing to accept a substantial reduction in their remuneration. They may tolerate a demotion or, for that matter, an increase in their workload, but when their pay is affected, they are willing to fight. Generally a reduction of 15% or more is significant enough to for a successful constructive dismissal action.

4. Abusive Work Environment

The bad boss syndrome has become a hot topic of conversation. Unfortunately, it has become that basis for many constructive dismissal lawsuits. Yelling, swearing and threatening behaviour has become a thing of the past. Rarely will any employment contract state that the employee will be treated well throughout their term of employment. However, it is an implied term of every employment relationship that the employee must be treated with dignity, civility and respect. They can walk away from the job if they are not and collect their severance. Employees who have been harassed, picked on, threatened and yelled at may indeed get the last laugh.

5. Suspension

The principle of progressive discipline often requires an employer to apply discipline in increasing order of severity to try and correct undesirable behaviour. However, not all forms of discipline are available to an employer. If an employee's employment contract (including any company policy incorporated into it) does not allow for a suspension, the suspension may result in a termination without cause. Employees are entitled to compensation for a without cause termination. In other words, you may be rewarding an employee for his bad behaviour.

6. Force Transfer

An employee can refuse a relocation not contemplated by the terms of the employment agreement if it will result in undue hardship for that employee (i.e. substantial increase in commuting time, sale of home etc).

The reality is change may be a necessary evil in your company. Employment agreements should be drafted in contemplation of change, allowing as much flexibility as possible to respond to market demands, downturns in our economy and other unforeseen circumstances without attracting a constructive dismissal lawsuit. In that absence of an agreement allowing for change, you should give as much notice of the change as possible. A change is permissible if an employee is given reasonable of it.  


For more information or to arrange a telephone consultation or a visit to our offices in Toronto, Ottawa or Vancouver, please visit http://www.canadaemploymentlaw.com/