Changing your employee’s pay, schedule, benefits, position, duties, or other work terms? Here is how you can avoid a constructive dismissal claim.
If you are an employer changing an employee’s work terms, you need to be concerned about facing the unintended consequences of a constructive dismissal and your potential liability to your now former employee.
A constructive dismissal arises where an employer makes a unilateral change to an essential term of employment which is of such significance to a reasonable employee that the employer will be considered to have breached the contract and thereby terminated the employee’s employment. If an employer is found to have constructively dismissed the employee, they will likely be required to pay the employee a potentially significant amount of pay in lieu of notice.
Nonetheless, there are several best practices employers can adopt when changing an employee’s work terms which would allow them to mitigate or avoid entirely the risk of constructive dismissal. When deciding to alter an employee’s work terms, the employer has essentially two choices, impose the change unilaterally and hope the employee will agree to the change, or provide the employee adequate notice of the change. Both options are viable choices for an employer, but the first approach has a significantly higher risk that the employee will be able to sue the employer for constructive dismissal. An employer can further reduce the amount of pay in lieu of notice an employee would receive on constructive dismissal by having well drafted employment contracts.
Agreement
When an employer unilaterally imposes a change in an employee’s work terms, the employee has three options as to how they respond:
1. the employee can accept the change, either by expressly agreeing or by continuing to work under the new terms without expressly rejecting;
2. the employee can reject the change, terminate their employment, and sue the employer for constructive dismissal; and
3. the employee can reject the change and advise the employer that they will continue to work on the old terms. If the employer permits the employee to continue to work, the employer is interpreted to have agreed to the employee’s position.
This approach is higher risk because it leaves the decision of whether to sue the employer up to the employee, as if the employee does not agree to the change they can either choose to sue the employer immediately or continue to work under the old terms, which if changed, would still amount to constructive dismissal. When attempting to introduce changes to your employee’s work terms, you should consider offering the employees incentives to agree, such as a signing bonus and ensure you receive their consent in writing.
We caution that some changes to an employee’s contract, require “consideration.” Consideration is something of value being provided by the employer to the employee in exchange for agreeing to the change. Courts in British Columbia are emphatic that the opportunity to continue working for the same employer, without more, is not considered to be consideration.
Termination
The far less risky approach for an employer is to provide the employee working notice of their termination, and an offer of re-employment at the new terms of their employment at the end of their working notice period. This approach is far less risky, as the employee has no opportunity to sue the employer for constructive dismissal as the terms of the employment are not legally being altered, instead they are being terminated and rehired on the new terms. Additionally, as long as the employer is willing to stomach the employee continuing to work under the old terms, there is no need for the employer to incur out of pocket expenses to incentivise the employee to agree to the change.
When using this approach, it is essential that the letters terminating and re-hiring the employee use the correct language or else the employee may still be able to sue the employer for pay in lieu of notice.
The amount of working notice which needs to be provided to an employee is based on several factors which vary from employee to employee. Nonetheless, a properly drafted employment contract which limits an employee’s entitlement to the minimums set out in the Employment Standards Act, can be used to limit the amount of working notice which an employer is required to provide an employee. We strongly advise that employers have such contracts in place even if they are not planning to introduce changes to their employees’ work terms as they function to reduce an employer’s liability to a departing employee in other circumstances.
Conclusion
If you have any questions about this topic or need legal advice in relation to this or any other issue, please contract us to set up a consultation. We can be reached at 6-4-705-0022 or by email at info@sorensensmith.com.