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Refresher on Constructive Dismissal

Constructive dismissal occurs when conduct or requirements made of an employee are so at odds with the employee’s job that such conduct/requirements amount to a fundamental breach of the employee’s employment contract. This breach allows the employee to act as though their employment has been terminated and seek damages.

Reduction in Pay: A Significant Change

A variety of “unilateral and fundamental changes” to an employee’s employment contract may constitute constructive dismissal. When it comes to an employee’s salary/pay, it is generally accepted that a change in overall remuneration (i.e. a significant decrease in salary or a removal of benefit entitlement) will constitute a “fundamental change”.

If an employee’s salary/pay is reduced or altered significantly, an employee may choose to leave their employment but claim that the change in pay left them no other option but to quit (i.e. they can claim that they have been constructively dismissed from their employment). The employee can then seek damages based on their constructive dismissal from their employment, including damages in lieu of the employee’s entitlement to notice of their termination. 

Exceptions to the Rule

Employees should be aware that there are some rare circumstances where a unilateral reduction in an employee’s salary would not constitute constructive dismissal. For example, a company undergoing financial hardship and that reduces an employees’ salary by only a small amount may successfully defend a constructive dismissal claim. Employees should always consult with an employment lawyer before claiming that they have been constructively dismissed so that any such exceptions can be fully canvassed.

Accepting the Change

A constructive dismissal only happens if an employee refuses to accept the unilateral and fundamental change to their employment and therefore, employees should be wary of behaving in a way which may imply that they have accepted the significant reduction in pay imposed on them. If an employee is found to have accepted the fundamental change to their employment, their constructive dismissal claim could be denied.

Employees should seek out advice from a legal professional regarding how to address any significant changes in pay, including how to properly object to the change in writing, to avoid being found to have accepted the change.

Mitigation and Deciding When to Leave

In determining when to walk away from employment, employees must specifically consider their obligation to mitigate the loss of income, which may include having to continue working for the employer at the reduced pay/salary rate. Before deciding to leave employment and claim constructive dismissal, employees should consult with an employment lawyer so that they can be made aware of their obligation to mitigate and how such an obligation may apply in their particular situation.

If you have any questions about constructive dismissal and your rights and obligations in a constructive dismissal scenario, please contact Sultan Lawyers by telephone at 416-214-5111 or by email at mlahert@sultanlawyers.com.

This post is part two of a six-part series. Please click here to read part one.


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