The Pitfalls of Changing an Employee's Compensation/Responsibilities
As most employers who have fired employees without notice know, firing an employee may cause the employee to seek compensation for pay in lieu of notice. However, many employers are caught by surprise when an employee who they haven't fired - at least not intentionally - sues them for constructive dismissal. Being sued in these circumstances can be even more surprising when the employee is still showing up for work every day. However, this situation can and does arise when an employee claims to have been constructively dismissed.
What is constructive dismissal?
When an employer decides to unilaterally make substantial changes to the essential terms of an employee's contract and the employee does not agree to those changes, the employee can be deemed to have been constructively dismissed. The employee can then treat the employment contract as having been breached and can sue for compensation in place of the notice period that the employer was supposed to give before terminating the employee's employment.
What are substantial changes to essential employment terms?
What qualifies as a substantial change to an essential employment term depends on the unique circumstances of the employer and the employee. Further, figuring out the terms of employment and which are essential becomes even more difficult when there is no written employment contract, creating uncertainty regarding the outcome of any constructive dismissal claim. However, depending on the circumstances, changes in an employee's overall compensation or compensation structure, workplace location, and employment duties can all qualify as substantial changes to essential employment terms.
What if the changes were made for legitimate business reasons?
Employers are entitled to re-organize their business as they see fit. However, when those re-organizations result in major changes to an employee's compensation or duties, even a well-intentioned employer may be found to have constructively dismissed an employee.
What happens to a constructively dismissed employee?
Inside or outside the employment context, any person who suffers damage as a result of another person has an obligation to try to mitigate, or minimize, the damage that they suffer. In the constructive dismissal context, this can result in the unusual result of the employee continuing to work for the employer, despite claiming to have been dismissed. This will only be an appropriate option for a constructively dismissed employee when they cannot find better paying work elsewhere and when staying would not require the employee to work in a hostile, embarrassing or humiliating environment. When staying is not a reasonable option, the employee has an obligation to seek suitable alternate employment elsewhere.
What will a constructive dismissal cost our company?
That depends. First, you may incur legal costs, if you have to defend legal proceedings commenced by the employee. Second, the constructive dismissal of an employee will entitle the employee to legislated minimum amounts for termination pay, severance pay (if applicable), and continuation of benefits, if any. Further, depending on the terms of any written employment contract, the employee may be entitled to significantly more than the minimum amounts set out in employment standards legislation. These amounts can vary widely, depending on the employee's age and length of service, the nature of their employment, the availability of similar work, and the employee's level of success in mitigating their damages.
What can we do to avoid constructive dismissal situations?
There are many ways to help avoid constructively dismissing an employee. First, clearly worded employment contracts can help to identify the key terms of the employment contract, which in turn can help to manage the employee's reasonable expectations and give the employer flexibility to adjust the employee's responsibilities. Other options may include finding reasonable work alternatives for the employee, seeking the employee's express consent to any change, offering some incentive to any change in essential employment terms and giving the employee time to consider the change before it takes effect, but the appropriateness of these options will depend on the circumstances.
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