New Year, new terms

In an ever-evolving business landscape, many organizations find it advantageous and even necessary to revisit employment terms from time to time. Considering changes to employment terms is often a necessary evil stemming from economic downturn, restructuring, changes to management or a shift in business strategy. However, actually making the changes requires caution and a sound strategic plan.

One of the key risks associated with altering employment terms is the threat of a constructive dismissal claim. Understanding this concept and knowing how to mitigate the associated risks is crucial for employers.

Constructive dismissal can occur when an employer unilaterally changes a fundamental term of an employee's contract without the employee’s consent, in effect terminating the employee’s employment. If played out, the employee may leave their job and sue the employer for wrongful dismissal. Defending against such a case can be expensive, result in a finding of severance owing to the employee, cause damage to the company's reputation and workforce morale, and loss of valuable talent.

Steps to minimize risk

To avoid or minimize the risks of constructive dismissal, it is essential for employers to consider the following points:

Get advice. Even if you only have a quick call with your employment counsel, it is important to get advice on the situation and, in particular, any notice you may need to give to the employee of changes to their employment.

Communicate. Communication is your friend! It is best to let the employee know about the issues the company is facing (with an appropriate amount of detail), the changes you are considering to the employee’s terms, and when they will be effective. This conversation provides the “what,” “why” and “how” that most of us would need to understand the employer’s position. Providing them with the rationale behind the proposed changes and how they will be affected (good and bad) is critical and will help alleviate concerns and prevent misunderstandings.

Seek agreement. After having explained what changes are being considered and why, it is very important to give the employee an opportunity to agree to the changes. Getting agreement may involve some negotiation and, likely, involve offering some form of value (“consideration”) such as a pay raise or a new benefit. After all, consent is a powerful defense against constructive dismissal claims.

Put it in writing. After the above discussions with the employee, it is important to put any agreement in writing and, ideally, the employee should sign the agreement. If no agreement can be reached with the employee, all is not lost. You can still impose the proposed changes. However, this is where the advice of legal counsel becomes particularly important as you will need to provide notice of any changes. This notice may be contingent on provincial employment standards legislation, reasonable notice at common law, or the terms of written employment contract. It is incredibly important to ensure a clear and accurate record of all discussions, agreements, and actions related to employment changes. This documentation not only provides a clear “paper trail” but can be invaluable evidence if a dispute arises.

Minor changes rarely a problem

It is important to remember that not all changes to employment terms will result in a potential constructive dismissal. Minor changes or changes that the employee implicitly agrees to by continuing to work without complaint are less likely to result in legal action. In our experience, changes to compensation such as a significant permanent pay reduction, a loss of managerial status or a major change in work location, bring both higher risk of a potential constructive dismissal and more concern from employees.

In our experience, most constructive dismissal claims arise when there is a lack of clear communication with employees and when changes to their terms are imposed without notice. However, we find that the situation is vastly different when there is transparent and honest discussion with employees about the rationale for changes, and when they are provided a fair amount of notice when imposing them.

In summary, it is important to take the time to consider your staffing needs as your organization evolves. Often this means changing employment terms for some of your employees. These changes may result in promotions and pay raises for some. In other cases, perhaps an employee is a great asset to the team but sitting in the wrong seat. If so, it may be necessary to change their contract terms.

By understanding and respecting the rights of employees, employers can make necessary changes to employment terms while reducing legal risk, maintaining a positive and legally sound work environment, and ensuring that the right people are in the right seats!

Richard B. Johnson is a partner and co-founder of Ascent Employment Law in Vancouver.