Considering changes to an employee’s employment agreement? Be careful
Employers must be cautious when considering changes to an essential term in an employee’s employment agreement. Whether the agreement is written or unwritten, and whether the change has to do with wages, duties, location or otherwise, be mindful. No employer wants or intends to be accused of constructively dismissing their employee.
Yet, for a variety of reasons, we see constructive dismissal claims on a daily basis in our practices, and if HR and management do not proceed with caution, it can also happen to your organization. This is not to say that an employer can’t ever change anything about an employee’s agreement. Businesses go through ups and downs, and the economic environment fluctuates, impacting employees, but there are certain elements to an employment agreement that need a little more thought before implementing changes. Recognizing potential triggers for constructive dismissal claims is vital, so that risk analysis can be performed and informed decisions made, before proceeding with the change.
The Supreme Court of Canada has established that a constructive dismissal occurs when an employer has not directly terminated an employee’s employment, but a termination can be interpreted from the employer’s conduct in unilaterally making a substantial change to an essential term or terms of the employment agreement (whether written or unwritten) - see Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10.
Unilateral changes
There are several decisions or acts by employers that can be construed as unilaterally changing an essential term of an existing employment agreement. Canadian courts have found constructive dismissal may occur when an employer partakes in a unilateral change in any of the following circumstances:
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Change in an employee’s work duties.
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Change to an employee’s position or duties following a leave, and/or providing no comparable pre-leave position.
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Change in pay, including changes to pay structure and failure to pay proper bonuses.
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Change in work hours.
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Change in work location.
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Failing to provide a safe work environment, or circumstances that involve a toxic work environment or when an employee is subjected to harassment or discrimination.
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Change in ownership.
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Temporary layoffs.
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Requesting an employee to execute a new employment agreement with different terms, generally.
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Removing an employee’s support so that they cannot fulfill their duties properly.
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Change in status, or demotion.
The onus to make out a constructive dismissal claim is on the employee, determined on a balance of probabilities. The employee must show on an objective level that the employer has unilaterally made a substantial change to an essential term or terms of their employment agreement. A court would need to evaluate whether the change was significant enough to suggest the employee was constructively dismissed.
When considering any potential change to an employee’s written or unwritten terms of employment, always consider what impact the unilateral change will have on the employee and whether the change could be seen as a substantial change to work duties, wages, or work environment.
Implementing changes to terms of employment
Here are a few things to consider when contemplating a change:
Contract language: It is always best practice to have a well-drafted written employment agreement. Having a well-drafted agreement can be instrumental in decreasing some of the associated risk with the above noted circumstances for constructive dismissal claims. Ideally, an employment agreement should be in written form, contain clauses that allow an employer to change, modify or alter the employee’s duties from time to time with notice as required by applicable employment standards legislation.
An example where the contract language could be helpful is temporary layoffs. A temporary layoff is, on its face, a fundamental change to the employment arrangement and fuel for a constructive dismissal claim. Language in an employment agreement where the employee agrees that a temporary layoff will not allow for any claim of constructive dismissal is helpful in avoiding the risk of such a claim.
Asking an employee to execute any new employment agreement after they have already commenced employment can open the door to a breach of the employment agreement and a constructive dismissal claim. It is essential that new terms to an employment agreement are provided in exchange for consideration.
Be careful with employees returning from leaves: An employer must always be mindful of an employee’s duties and position prior to a job-protected leave of absence, and ensure that the employee is being returned to their same or comparable role and functions. Failing to do so will surely raise constructive dismissal flags.
Keep wage and salary reductions. and changes to work hours to a minimum: Drastic changes to an employee’s wages or work hours will scream constructive dismissal. Whether the hours worked are drastically decreased or increased, such changes could lead an employee to successfully claim constructive dismissal. It is also important to ensure the employee receives all of their contractual entitlements, including all bonuses stipulated by contract or policy.
Ensure a safe work environment: Employers have a positive duty to ensure that their workers are not harassed, discriminated against, and are further not subjected to a hostile or toxic work environment. Employers should take precautions such as having valid policies to address harassment, violence, and other occupational health and safety hazards in place, conduct thorough investigations into any allegations involving unsafe work environments in a timely manner, and not partake in any form of retaliation when claims about the work environment are brought to the attention of management.
Avoid drastic changes to work location: Employers should not change an employee’s work location without contemplating whether the location is a substantial term of the employment agreement, or without a relocation agreement. Location change is not limited to changing locations or cities but can extend to changes in work-from-home arrangements.
Give appropriate notice for any changes: In the event that a change must be made to an employee’s contract, the employee should be given prior reasonable notice of the change comparable to termination notice.
Constructive dismissal claims
As an employer, you did all you could to be careful and make best efforts to avoid any constructive dismissal claims, yet somehow you find yourself defending against a constructive dismissal case. Ultimately, claims for constructive dismissal will have similar consequences as other wrongful dismissal cases, which require an employer to provide proper notice or pay in lieu of termination, but can also lead to human rights complaints, and involve general damages and back pay.
Review the current terms to the employment agreement and evaluate the seriousness and impact of the change. An employer should provide as much advance notice as possible of the upcoming change to an essential term of the employment agreement. Should the employee not challenge the change, or accept it, they will be deemed to have acquiesced and will effectively reduce their chances of making out a successful constructive dismissal claim.
Ultimately, if the employee accepts the changes, there is a significantly lower chance that any claim for constructive dismissal would be successful.
The goal is prevention. Employers should consider the change they seek to implement to an employee’s agreement, evaluate whether it is a change to a fundamental term of the agreement, and as each situation is fact specific, speak with legal counsel who can assist with evaluating the risks and advise on implementing the change to avoid a constructive dismissal claim.
Gordana Ivanovic is a partner with the Employment and Labour Relations Team at McMillan in Calgary. Kritika Sharma is an associate with the Employment and Labour Relations team at McMillan in Calgary. Melanie Cheddi is an associate with the Litigation and Dispute Resolution team at McMillan in Calgary.
