Like many businesses in Alberta and across the country, your business is facing the challenge of reopening in a distressed economy. This has forced your company to consider all options for your employees including terminations, layoffs, job sharing and wage rollbacks as part of a short or medium term solution. It is important to understand that while such measures may be necessary to keep your business afloat, they can create liability for you.
Wage rollbacks and re-structuring in general are tools that many businesses are using to deal with the impacts of Covid-19. The risk however, of unilaterally imposing wage rollbacks and repositioning employees within your workplace is that it may result in those employees being constructively dismissed.
A constructive dismissal occurs when an employer unilaterally changes fundamental terms of an employment contract. Not all wage rollbacks or changes in job duties amount to a constructive dismissal, however, where the wage reduction is significant or is coupled with a demotion or fundamental change in duties, it may trigger legal liability for your company.
At law, a significant wage rollback or a lesser rollback combined with a significant change in job duties is treated the same as a direct termination of employment. That is, in the face of these changes, an employee is at liberty to declare themselves constructively dismissed and sue for wrongful dismissal.
Alberta and Canadian Courts have demonstrated a tolerance for employers who uniformly roll-back wages at a level of 15% or less. This is not a hard and fast rule but it is an important guideline to consider when trying to mitigate risk associated with these business decisions.
What is not yet clear is how Alberta Courts will rule on these constructive dismissal cases where the decision to impose a wage rollback or restructure an employee’s job is based on the economic circumstances created by Covid 19. Will the employer be granted greater latitude by the Courts? Or will the Courts treat these constructive dismissal cases as business as usual?
Documenting the necessity for the changes will be key in defending these constructive dismissal claims. As part of that effort, employers should seek to have employees agree to these changes in exchange for some level of consideration and to the extent possible, the changes should be made on an interim basis to be revaluated as the economy improves. Such an approach will allow employers to put their best foot forward in defending a constructive dismissal claim resulting from these difficult business decisions.