In the current economy, many employers are finding that they need to implement workforce changes and reduce labour costs. This can include shifting compensation to be more heavily commission-weighted, reducing hours of work and compensation by 20% by way of a 4-day work week, and delaying salary increases. These options, and others, can be a great way for employers to successfully navigate a recession. However, employers should be mindful these strategies can trigger a constructive dismissal claim (i.e. effectively fired). If the employee is right – that they were constructively dismissed – then the employee is suddenly entitled to their termination entitlements. This can include both statutory entitlements and common-law entitlements, which may amount to over two years’ compensation.
So when can an employee claim they have been constructively dismissed? An employee can take the position that they have been effectively fired if you make a substantial change to a fundamental term of their employment contract. For example, if you change their position, compensation, etc. In addition, an employee can take the position that they have been effectively fired if the workplace has become unbearably toxic. Generally, the test is described by the courts as asking whether a reasonable person in the employee’s position would conclude that the employment relationship has been fundamentally altered or that the workplace is intolerable.
In the recent decision of Parolin v. Cressey Construction Corporation, the employee claimed that she had been constructively dismissed after the employer ended the work-from-home program and refused to appropriately adjust her salary consistent with her new managerial position. The employee had been working remotely, in large part due to childcare obligations. After several years of remote work, the employer decided to require that the employee immediately return to working from the office. The employer felt that remote work was always a temporary pandemic measure, but had never confirmed this in writing. On review, the Court concluded that, without a written remote-work policy, the employer needed either the employee’s agreement to return or reasonable working notice of the change. The Court also found that the refusal to appropriately increase her salary also weighed against the employer. Accordingly, the Court determined that the employee had been constructively dismissed and was entitled to her termination entitlements. In the case, the employee was awarded 19 months’ compensation.
This case emphasizes several key takeaways for employers. First, it is important that all terms of the employment relationship – including work location and remote-work terms – are detailed in writing (e.g., in the employment agreement, the HR Handbook, or a remote-work agreement). Second, if you are making changes to the terms of employment – including compensation – you should either obtain the employee to consent to the changes or provide the employee with reasonable working notice of the change. In the Parolin case, had the employer informed the employee of the change to in-office work with proper notice, the Court may have determined otherwise. For example, if the employer had informed her that they were going to a hybrid in-office and remote work model starting in two months’ time, to give her a chance to make childcare arrangements and to still give her some remote-work time.
For guidance on how to strategically address necessary workforce changes without triggering constructive dismissals, please contact our firm.
