Employers walk a fine line when trying to implement changes to their employees’ terms of employment. They often ask us the following: “how do we prevent a constructive dismissal claim?” A recent Ontario decision provides employers with helpful guidance about making unilateral changes without falling into the constructive dismissal trap.

What is constructive dismissal?

Constructive dismissal is described by the Supreme Court of Canada as follows:

A constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee. Such action amounts to a repudiation of the contract of employment by the employer whether or not he intended to continue the employment relationship. Therefore, the employee can treat the contract as wrongfully terminated and resign which, in turn, gives rise to an obligation on the employer’s part to provide damages in lieu of reasonable notice.

The Wronko Trap

One of the seminal cases in constructive dismissal is Wronko v. Western Inventory. In that decision, the Ontario Court of Appeal described four outcomes that may arise when an employer tries to unilaterally amend a fundamental term of employment:

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The issue in Wronko arose when the employee rejected the proposed new terms. The employer did not impose the new terms immediately (as in scenario 2) or make it clear that employment would end if the employee did not accept the “new” terms (as in scenario 3). Effectively, the court found the employer acquiesced to the employee’s refusal such that there was no notice of the imposition of the changes. On that basis, the attempt to impose the changes constituted a constructive dismissal because the purported “notice” was void.

The court held that in order to effectively fit into the “no constructive dismissal” realm set out in scenario 3 above, an employer must not only advise the employee of the effective date of the change, but it must also be clear that if the employee does not accept, there is no other option other than the termination of employment. In essence, the employer is required to give fair warning of the consequence of the employee’s failure to accept. Without such a warning, a constructive dismissal will arise when the employer purports to implement the new terms, as happened inWronko.

The Nufrio v. Allstate Decision

In a recent decision, Justice Pollak considered a Wronko-type claim. In Nufrio v. Allstate, the employer provided twenty-four months’ notice to its sales agents of changes to their compensation model and the location of their employment. Justice Pollak held that the employer’s notice of the changes was unequivocal (even though it did not explicitly state that employment would end if the changes were not accepted, it was the “only option” and sending such an explicit notice would have caused “stress” to the employees); the length of the notice was sufficient; the employer did not condone/acquiesce to the employee’s failure to accept; and the changes were, in fact, implemented.1 She distinguished the case from Wronko and found that the employee had not been constructively dismissed because the notice was sufficient and clear and there was no evidence that the employer “acquiesced.” The employee’s subsequent actions in not showing up for work and purporting to work under the old employment terms was unreasonable, and so the employer was justified in terminating his employment for just cause.

Lessons for Employers

The Nufrio decision highlights some important lessons for employers that are considering making changes to their employees’ terms of employment:

1. Unilateral changes to employment terms do not automatically constitute constructive dismissal: The following quote from Nufrio sums up this lesson:

An employer has the right to decide what terms of employment it is prepared to offer its employees. It cannot change terms of employment without giving an employee appropriate [advance] notice of the changes. [The employer] did so in this case. [The employee] did not have the right to insist on employment terms he wanted.

2. Notice of a change must be unequivocal: The snag in Wronko was that there was uncertainty as to whether the employee’s employment would be terminated at the end of the notice period if he did not accept the changes. The court held in Wronko that the employer had acquiesced to the employee’s refusal, which “voided” any previous notice of termination.

While the court in Nufrio appeared to rely on the employee’s own admission that he knew that his employment would end at the end of the notice period, the employer did not explicitly put that consequence in writing. A best practice would be to ensure that the changes are clearly communicated in writing to the employee and that the employer responds to any refusal by the employee with a reconfirmation that the changes will still be implemented. The employer must avoid an explicit notice of termination, which may cause “stress and trauma” to the employee. There is a delicate balance that must be reached between the clear notice and the avoidance of undue stress.

3. Maintain the status quo during the notice period: In assessing whether the employer’s notice of change was effective, the court in Nufrio referred several times to the fact that the employee’s compensation was guaranteed during the notice period. Making any changes during the notice period may void the notice and give rise to a constructive dismissal claim (as in scenario 2), so employers should ensure that the status quo is maintained for the notice period.

The Nufrio decision affirms that employers may impose new employment terms without triggering a constructive dismissal claim. However, the length of the required notice period will vary and the proper papering and communication of the proposal is critical so (as always) we recommend seeking legal advice before initiating any changes to employment terms.