Imposing benefit reductions as a means of saving money could end up costing an employer more than it actually saves. Last month the BC Supreme Court awarded 15 months’ severance to a 45 year-old masonry foreman for constructive dismissal after his employer unilaterally changed his bonus scheme, thereby substantially altering his terms of employment.
Courts frequently view pensions, benefits, incentive schemes and other forms of compensation as essential terms of an employment contract. Where an employer unilaterally imposes substantial changes to these essential terms, a court may decide this constitutes constructive dismissal. An employee so dismissed can sue for notice damages which, especially for longer-service, higher-income employees, can amount to significant sums.
Earlier court decisions in BC and other provinces suggested that unilateral changes of this nature could be achieved without constructive dismissal if made following reasonable notice. However, in a 2008 Ontario Court of Appeal decision, an employee was awarded 24 months’ severance for constructive dismissal even after his employer provided two years advance notice that it was changing the terms of his severance package. Ironically, the severance awarded was the amount specified in the contract the employer was attempting to change.
The Ontario decision has not yet been applied in BC. However, it lends uncertainty as to whether changes can be made by providing notice. The clearest way to avoid this uncertainty is for employers to ensure employment contracts contain terms which expressly grant the employer discretion to make such changes, so that a court will view them as an application of a term of the contract, and not as a change to the contract itself.