When does a change in compensation constitute constructive dismissal?
Change, in a workplace environment, is a constant. Employers are required to
react to address a constantly evolving work environment. Necessarily, evolution
in the business environment often requires the ability to invoke and manage
change in the employment relationship.
The mere event of invoking change or amending existing terms and conditions
of employment is not, in and of itself, particularly complicated. Doing it
successfully, however, is another matter. Often companies, in order to adjust to
the changing economic landscape must affect changes to existing compensation
plans, in order to moderate the cost of doing business. In turn, such changes
can directly impact the income of employees, either on a fixed or variable
Typically, a significant reduction in an employee’s compensation will be
found to constitute constructive dismissal. The courts have recognized that
remuneration is normally viewed, from the employee’s perspective, as the most
fundamental term of a contract of employment. A unilateral change in
compensation that significantly decreases an employee’s remuneration, whether a
change in salary, commissions, or bonus, has a significant chance of being found
to result in constructive dismissal.
Conversely, as long as the employee’s overall compensation has not been
significantly reduced, the courts also have found that the employee’s
remuneration scheme can be changed without a resulting constructive dismissal.
For example, where an employee’s compensation scheme is changed from a salary to
a commission-based payment, this will likely not constitute a fundamental change
to the contract of employment if the employee stands to earn substantially the
same total compensation. On the other hand, our courts still have found the
changes which could have resulted in higher earnings for an employee, by virtue
of a shift to a commission-heavy compensation program, still resulted in a
One example of a case where a change of compensation was alleged to
constitute constructive dismissal is O’Sullivan v. Cavalier Tool &
Manufacturing Ltd. This 2010 decision involved an employee who had been
temporarily promoted to shop foreman and was shifted by his employer from a base
salary to an hourly wage scheme, and moved to the position of shop leader, as
the foreman position was no longer required. The company also guaranteed that
the employee would be able to work the requisite number of hours to bring him
back to the same compensation level as the foreman position. The court,
nevertheless, found that there was a constructive dismissal, as it held that the
employer, in arbitrarily and unilaterally demoting O’Sullivan to the position of
shop leader, and altering his compensation scheme, had repudiated the
In another recent case, Doran v. Ontario Power Generation, a 54 year
old Vice-President at OPG alleged that he had been constructively dismissed as a
result of a corporate reorganization in which the compensation and reporting
hierarchy for senior management was changed. His compensation was variously
reduced by 14% to 17%, and his duties were significantly reduced as the division
was being phased out. OPG argued that the changes did not constitute a breach of
the employment contract and that they were made as part of the evolution of the
enterprise and an overall change in direction and philosophy was necessary to
ensure its financial viability. The changes were not directed at the individual
but applied to all senior management.
The court found that the changes to the terms and conditions of Doran’s
employment, when viewed together, did constitute constructive dismissal.
Notably, however, the trial judge held that the changes in compensation alone
were not sufficient to constitute a constructive dismissal, and that the changes
to compensation under the circumstances of the restructuring and reorganization,
absent the loss of job responsibilities, would have been acceptable.
The determination of whether or not a change in compensation constitutes a
breach of contract and constructive dismissal is a fact specific inquiry, which
must be reviewed on an individual basis in order to determine whether the
changes constitute a unilateral alteration of a fundamental term of employment.
Often, it is difficult to gauge with certainty what magnitude of change in
compensation will be perceived by the courts to constitute constructive
dismissal. Generally speaking, the more dramatic the nature of the change and
the more unilateral or high-handed the manner in which it is introduced or
implemented, the more likely a finding of constructive dismissal is to
Norman Grosman tackles your employment law dilemmas regularly on Workopolis.
More information about him and his legal services can be found on his website grosman.com.