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February 24, 2009

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Wages and Termination

Minimizing Your Reorganization Cost in Canada

by Sara Parchello

Many employers are trying to reorganize operations in order to survive this economic downturn. As Canadian employers know, a substantial change in an employee’s job functions can lead an employee to make a claim for constructive dismissal. This can result in significant liabilities when you can least afford it. How far can a Canadian employer go to reorganize the workforce without triggering a claim for constructive dismissal?

What is constructive dismissal?
To recap, and as most readers are aware, a constructive dismissal results in a claim much like a wrongful dismissal claim: An employee argues that he or she was terminated, without proper reasons, from the job he or she had accepted. In constructive dismissal cases, Canadian courts have sought to protect employees and provide a remedy if an employer attempts to unilaterally change the employment relationship.

Any substantial, unilateral change to an employee’s duties can trigger a claim for constructive dismissal. The risk is greater if the change involves a reduction of responsibilities. If an employee can show that the change goes to the root of the employment contract, the employee will have a good chance of being successful in the claim. Some of the more common grounds for a constructive dismissal claims include:

When does it happen? Do bad economic times matter?
While the case law is mixed, there is some judicial support for the idea that bad business conditions should be considered when determining whether the employer’s reorganization amounts to a constructive dismissal.

In Gillespie v. Ontario Motor League (1980), a case that arose in an earlier recession, the judge said that an employer must be able to “realign” its structure from “time to time” as “circumstances require.”

Still, the employer lost on the basis that the changes to the employee’s reporting structure were embarrassing, particularly when compared with his colleagues. Nonetheless, the case suggests that if employees who work together experience the same relative decrease in duties or responsibilities (or “embarrassment” to put it bluntly) because of reorganization, this fact could help the employer if a constructive dismissal claim were to arise.

In Lesiuk v. British Columbia Forest Products Ltd., (1984), also decided during the recession of the early 1980s, the employer was successful in defending itself against a claim of constructive dismissal. It showed that although it made changes to the employee’s job duties, it had encouraged the employee to stay and had shown no animosity toward that employee.

The idea that an employer should be accorded some flexibility was echoed a little more recently in Gilbert v. Winnauer, a 2001 Ontario case. The court stated that “a company is entitled to realign management positions to make better use of a person’s abilities and to deal with market exigencies.”

Still, an employer should be careful as to how the restructuring affects an employee’s enthusiasm for the job. For example, a constructive dismissal claim is more likely to be successful if the employer takes from an employee the duties he or she most enjoys. This was the case in Michaud v. RBC Dominion Securities Inc., a 2001trial decision that was later upheld by the British Columbia appeal court. Such a change is more likely to be found to be significant.

What will trigger a successful claim is ultimately based on the specific facts. These cases help illustrate that a reorganization will not always result in successful constructive dismissal claims. Particularly if the reorganization is done in a respectful and careful way that affects a broader number of employees, while preserving the employee’s reporting structure and pay structure.

How to go about It
If an employer decides that substantial changes must be made to the workplace, it should consider following the process described in the Wronko v. Western Inventory Services Ltd. line of cases. (See Challenging Times in Canada Present Opportunities for Creative Solutions, from December 23, 2008, issue of Northern Exposure.) That is, the employer informs the employee(s), preferably in writing, with a reason for the change(s). If the employee rejects the proposed changes, the employer has two choices:

  1. It can advise the employee that refusal to accept the new term will result in his or her termination and that employment would be offered on new terms at a stated point in time; or
  2. It can accept that there would be no agreement to the change and continue employment on existing terms.

The appeal court in Wronko indicated that if the employer doesn’t expressly terminate the existing employment contract, it will be taken to have agreed to the employee’s rejection of the change. The existing contract would then remain in effect.

Read more about employment law in Canada


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