Sunday, April 21, 2024

EVERYDAY LAW: Constructive dismissal of an employee

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There is a concept in employment law known as constructive dismissal.
Constructive dismissal may occur when an employer decides unilaterally to make changes to the fundamental terms of a contract of employment and the employee does not agree to the changes and leaves his job as a result.  
In such cases since there is no formal dismissal of the employee by the employer the term “constructive dismissal” is used to describe the situation.  
Since the employer has made substantial changes to the employment contract unilaterally, the employer, by his conduct, is refusing to honour its obligations under the contract, and therefore terminating it. The employee can treat the contract as repudiated and can quit the employment and sue for breach of contract.
An example of the above situation occurred recently in the Canadian case of Piron vs Dominion Masonry Ltd. (2012), a decision of the Supreme Court of British Columbia.
That case concerned an employer’s refusal to pay a bonus for two years partly due to the economic downturn.
The employee, James Piron, was a 44-year-old masonry foreman who had worked for the defendant company for 19 years. Having started as a mason, Mr Piron became a foreman within a short period of time and began to earn relatively significant bonuses.
After a number of years in which he earned sizeable bonuses, the economic downturn negatively affected the employer’s fortunes. As a result, the employer sought to reduce the size of the bonuses but he was unable to secure Piron’s consent. He finally informed Piron that he could either take his pay without bonus or leave the company.
The court, after hearing the evidence in the case, came to the conclusion that negotiating bonus for individual projects had become a feature of Piron’s contract of employment. It accepted that the economic circumstances and the size and complexity of the projects were relevant to what was negotiated.
However, those circumstances did not give the employer the right to unilaterally change a fundamental term of the contract.
At paragraphs 44 and 45 of the court’s decision the issue of the economic circumstances and their effect on the ability of the employer to alter the contract of employment was addressed. The trial judge said:
44. “It is clear that with the economic downturn, Dominion felt that it was entitled to impose terms of employment that did not provide for payment of a bonus; and the company went so far as to reduce the hourly rate without any meaningful consultation with the employees affected, as a result of the straitened financial circumstances.”  
Essentially, their position is that the economic circumstance justified a change in the relationship between Mr Piron and the company. In Farquhar vs Butler Brothers Supplies Ltd. [1988] B.C. J. No. 191 (C.A.), Mr Justice Jambert dealt with a case in which economic circumstances were said to justify the employer’s cutback in employment income:
Economic Circumstances Counsel for the employer argued that the poor financial position of the company justified the company’s decision to cut salaries and other benefits.  He said that if the decision had not been taken the company might have been forced out of business. That might well have been so. The company’s poor financial position constituted a persuasive reason why the employees might each have agreed to salary cuts, and perhaps to other modifications in their contracts of employment. But it does not justify a unilateral change in the contracts of employment. Nothing does. Mutuality is required for every change in the basic terms of employment unless, of course, the contract of employment itself gives the employer the right to make unilateral changes in its terms.
This court recently decided, in Anderson vs Haakon Industries (Canada) Ltd. (Unreported, 18 November, 1987, CA005208), that neither adverse economic circumstances generally not the poor financial position of the employer should affect the damages to which a wrongfully dismissed employee is entitled. The notice period serves as a measure of the loss flowing from the breach of contract because, if proper notice had been given, there would have been no breach. Damages are measured by that loss. The loss suffered by the employee as a result of the breach is not lessened by adverse economic circumstances generally, or by the poor financial position of the employer in particular.
45. “Economic circumstances can lead to a substantial change to an employment contract, but the process is through negotiation, not unilateral imposition of lower compensation.”
In Piron’s case the employee was awarded 15 months’ pay as severance damages.
• Cecil McCarthy is a Queen’s Counsel.

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