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An employee’s salary is generally a fundamental component of an employee’s contract, and an employer cannot unilaterally change a fundamental term of employment in a contract without being at risk of a constructive dismissal claim.

Brief Summary of Constructive Dismissal

In Canada, a claim to constructive dismissal can arise in typically two ways. The first way is when an employer substantially and unilaterally alters a fundamental term of the employment contract to such an extent that an employee can view the employer’s conduct as termination and can claim wrongful dismissal. Consequently, it’s as if the employee was let go without any notice or termination pay in lieu of notice.

Some examples involving an employer making substantial changes to the employment contract that results in a claim of constructive dismissal include:

  1. lowering an employee’s compensation;
  2. changing hours of work;
  3. demoting the employee;
  4. altering the employee’s reporting structure, job description or working conditions;
  5. imposing a suspension or leave of absence; and
  6. relocating the employee’s workplace.

The second way an employee can claim constructive dismissal is when an employer fails to satisfy their end of the employment contract and to meet its essential obligations. For instance, if a wage is mutually agreed upon in an employment contract and an employer fails to pay an employee, then an employee is entitled to make a claim of constructive dismissal. As a result, an employee is ultimately released from his/her obligation to perform under the contract. Therefore, a constructive dismissal claim becomes a wrongful dismissal claim, and as such, employees are entitled to view their dismissal as one without notice or termination in lieu of notice.

Termination in lieu of notice is a remedy to the employee, and the payment is calculated in lieu of earnings over an estimated period of time it would take an employee to find comparable employment. Some factors a court considers when calculating the damages owed for notice pay include age, position, skill-set, credentials, years of service etc.

Change in Salary and Constructive Dismissal

Generally, an employer can reduce an employee’s salary if the reduction is minor and if the employee agrees to the change; however, such minor changes concerning an employee’s salary are rare, and more commonly, the changes concerning pay are more significant.

Consequently, an employer unilaterally reducing an employee’s salary is likely to alter a fundamental component or a central term of the employment contract. Then again, what is fundamental is not always clear and it depends on the circumstances. Not all changes to the employment relationship give rise to a constructive dismissal. There are also rare exceptions where a unilateral reduction in an employee’s salary would not guarantee a successful dismissal claim. One such example is that a company undergoing financial hardship that reduces an employee’s salary by a small margin may successfully defend a constructive dismissal claim. Other considerations include whether an employment agreement contains a written termination clause limiting an employee’s common law notice entitlement.

For these reasons, it’s important to see an experienced employment lawyer who can assess the merit of pursuing a constructive dismissal claim before leaving employment and whether the change in the employment relationship is fundamental to the contract. 

If you believe you have been the victim of wrongful dismissal, constructive dismissal, or otherwise and would like to consult with a qualified employment lawyer to better understand your rights and obligations, please contact Sultan Lawyers by telephone at 416-214-5111 or by email at mlahert@sultanlawyers.com


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