My Manager is Changing my Position and my Pay; Is this a Constructive Dismissal?

Employees often wonder if there is anything they can do when they are told by their manager or boss that their job title or their pay structure will be changing. If an employee does not want to have their job changed in these ways, can they refuse to accept?

Farber v. Royal Trust Co.

The Supreme Court of Canada dealt with this legal issue in Farber v. Royal Trust Co., [1997] 1 SCR 846. In that case, the employee was a Regional Manager. The company, Royal Trust Co., was undergoing a major restructuring in which they eliminated all its Regional Manager positions. As a result of the restructuring, he was offered a different job with fewer responsibilities and with a change to his compensation that would likely cut his earnings in half.

The Court determined that where an employer makes substantial changes to the essential terms of an employee’s contract and the employee does not agree to the changes and leaves his or her job, the employee has not resigned, but has been dismissed. Since the employer has not formally dismissed the employee or fired them from their job, this is referred to as “constructive dismissal”.

The test for constructive dismissal is whether, at the time the offer was made, a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed. It is important to note that the employer does not necessarily have to intend to force the employee to leave his or her employment or be acting in bad faith when making substantial changes to the employment contract’s essential terms.

The reasoning behind the law of constructive dismissal is as follows: given that the employer is changing the fundamental terms of the employment contract and is not meeting its obligations, the employee can treat the contract as one that the employer does not intend to uphold, and the employee can leave their job and make a legal claim against their employer.

In the case of Farber, the Court found that it was reasonable for the employee to come to the conclusion that the new offer of employment substantially changed the essential terms of the employment contract and to consider themselves dismissed. The employee was in fact (i) being significantly demoted, (ii) having his responsibilities drastically cut resulting in a considerable loss of status and prestige; and (iii) having the terms of his compensation changed dramatically.

In summary, where an employer acts unfairly and unreasonably in their changes to an employee’s position and pay, the employer is committing a fundamental breach of that contract and the employee is protected by the law of constructive dismissal. The employee can then consider himself or herself to be constructively dismissed and may have grounds for a legal claim against their employer for compensation in lieu of notice and, when appropriate, damages.

Each individual employee’s circumstances are unique. We encourage those who have had changes made to their employment to seek legal advice from an Employment Law lawyer.