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Benefit Reductions Can Result in Constructive Dismissal
August 13, 2012

Imposing benefit reductions as a means ofsaving money could end up costing an employer more than it actually saves. Lastmonth the BC Supreme Court awarded 15 months’ severance to a 45 year-oldmasonry foreman for constructive dismissal after his employer unilaterallychanged his bonus scheme, thereby substantially altering his terms ofemployment.

Courts frequently view pensions,benefits, incentive schemes and other forms of compensation as essential termsof an employment contract. Where an employer unilaterally imposes substantialchanges to these essential terms, a court may decide this constitutes constructivedismissal. An employee so dismissed cansue for notice damages which, especially for longer-service, higher-incomeemployees, can amount to significant sums.

Earlier court decisions in BC and otherprovinces suggested that unilateral changes of this nature could be achievedwithout constructive dismissal if made following reasonable notice. However, ina 2008 Ontario Court of Appeal decision, an employee was awarded 24 months’severance for constructive dismissal even after his employer provided two yearsadvance notice that it was changing the terms of his severance package. Ironically,the severance awarded was the amount specified in the contract the employer wasattempting to change.

The Ontario decision has not yet beenapplied in BC. However, it lends uncertainty as to whether changes can be madeby providing notice. The clearest way to avoid this uncertainty is for employers to ensure employment contracts containterms which expressly grant the employer discretion to make such changes, sothat a court will view them as an application of a term of the contract, andnot as a change to the contract itself.

Pironv. Dominion Masonry Ltd.