Consenting to Compensation Reduction: Time Limit to Alleging Constructive Dismissal
When it comes to dismissing an employee, most employers recognize they may do so by formally with or without cause, and with or without notice. However, a more subtle form of dismissal – known as a “constructive dismissal” – may arise when an employer makes a unilateral change to a fundamental term of the employee’s employment agreement, or when the employer engages in a course of conduct that shows the employer does not intend to be bound by the terms of the employment agreement. If an employee is constructively dismissed, the employee may be entitled to seek damages for reasonable notice at common law (assuming the employee is not bound by an enforceable severance clause in her or his offer of employment).
A classic example of a constructive dismissal can arise from an employer’s unilateral decision to significantly reduce an employee’s compensation. When such a reduction occurs, the employee must protest the reduction to their compensation to protect their right to claim damages for a constructive dismissal. Otherwise, a judge may rule that the employee condoned the reduction and is not entitled to damages. But how long does an employee have to protest before the employee will be deemed to have condoned the change?
The recent Alberta Court of Appeal (the “ABCA”) decision of Kosteckyj v. Paramount Resources Ltd, 2022 ABCA 230 (“Kosteckyj”) sheds light on this question.
Background and Summary Trial
Ms. Kosteckyj worked for Paramount Resources Ltd. (“Paramount” or the “Company”) and its predecessors for approximately seven years as a professional engineer. On March 27, 2020, Paramount announced it would reduce the salaries and benefits of employees Company-wide and cancel access to seminars and training effective April 1, 2020. As a result of these changes, Ms. Kosteckyj’s salary was reduced by 10%; the Company’s contributions to her RRSP were suspended; her bonus was delayed or cancelled; and she lost access to seminars and training. Paramount then dismissed Ms. Kosteckyj without cause on April 22, 2020.
Ms. Kosteckyj sued Paramount and at trial she alleged, among other things, that she had been constructively dismissed on April 1, 2020, citing reductions to her pay and benefits. The judge found that Paramount constructively dismissed her. The judge also held the Ms. Kosteckyj had no obligation to protest the change to her compensation in the 25 days between her being informed of the cost reduction program and the date of her dismissal
Appeal to the ABCA
Paramount appealed the trial judge’s decision to the ABCA. The appeal was heard by a panel of three judges.
The ABCA agreed with the trial judge that Paramount constructively dismissed Ms. Kosteckyj when it made significant reductions to her compensation. However, the ABCA held the trial judge was wrong in concluding that Ms. Kosteckyj did not condone the changes to her compensation. The ABCA held there was no evidence that Ms. Kosteckyj took any steps to communicate with Paramount about the reductions to her compensation, nor did she express her dissatisfaction during the 25-day period.
The ABCA judges disagreed with each other on the length of time an employee has to protest a reduction to his or her compensation. Two judges did not want to define a specific time period within which an employee must protest changes to his or her compensation. Instead, the majority judgment held, with strict regard to the unique circumstances of this appeal and with regard to Ms. Kosteckyj’s total years of service, that Ms. Kosteckyj’s ought to have protested within the 25 days preceding her express dismissal.
In a separate opinion, one of the ABCA judges, Justice Wakeling, held 10 business days following the April 1, 2020 changes was a reasonable amount of time for Ms. Kosteckyj to accept or reject the changes. Justice Wakeling also held that the fact that Ms. Kosteckyj continued to work in the same office and performed the same tasks as she did before for three weeks was indisputable evidence that she accepted the changes to her compensation.
In reaching this decision, Justice Wakeling also considered the fact that Ms. Kosteckyj:
- was a healthy, knowledgeable, and informed person;
- was able to collect information needed to assess the job market for a professional engineer in Calgary and elsewhere;
- was able to consult legal counsel on her rights and obligations; and
- could make an informed and prudent decision to accept or reject the new employment terms.
Justice Wakeling additionally held, in contrast to the majority of the panel, that an employee’s length of service does not affect the length of time employees have to voice their opposition to a significant change. In Justice Wakeling’s view, an employee with a different set of attributes from Ms. Kosteckyj may need longer to make an informed decision, but it would be a rare case for that period to exceed 15 business days.
Justice Wakeling found that employers need to know the status and compensation levels of their employees in order to operate. Therefore, an employee cannot delay indefinitely providing an employer an answer on new employment terms.
Justice Wakeling made it clear that his judgment was based on the factors of Ms. Kosteckyj’s situation and only in relation to the amount of time an employee has to protest changes made to his or her compensation. The amount of time an employee has to accept or reject new employment terms may be different if an employer alters an employee’s tasks or the location in which their work is performed.
The Kosteckyj decision suggests that when an employer unilaterally reduces the compensation of an employee, the employee must decide relatively quickly whether or not he or she will accept the change. While there was disagreement among the ABCA judges on what constitutes a reasonable amount of time to protest such changes, the ABCA clarified that 25 days at most was a sufficient period in Ms. Kosteckyj’s case.
Employers should keep in mind that constructive dismissal claims can be complex. Employers should seek legal advice prior to implementing compensation reductions or removing particular compensation programs. Employees who think they have been constructively dismissed by a compensation change should also seek legal advice quickly so that they can understand their rights and the best approach to protesting the change. Employees who fail to take immediate action may risk a finding that they have no recourse against their employer.
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