Ch-ch-ch-ch-Changes

(Turn and face the strain)

Ch-ch-Changes

Oh, look out you rock ‘n rollers

Ch-ch-ch-ch-Changes

(Turn and face the strain)

Ch-ch-Changes

As David Bowie’s song goes, sometimes you must turn and face the strain.  A recent case suggests that an employee should turn and face the strain when faced with a lateral move, or at least take the time to discover whether the lateral move is a substantial enough change to justify alleging constructive dismissal.  A classic look before you leap lesson is clear in the recent Meyers v. Chevron Canada Limited decision released last week by the Supreme Court of British Columbia.

The law is fairly well settled on what constitutes constructive dismissal.  As was set out by the Supreme Court of Canada in Farber v. Royal Trust Co, when an employer imposes a unilateral and substantial change to essential terms of a contract of employment that results in an employee leaving his or her job, it is not a resignation but a dismissal.  Because there is no ‘formal dismissal’, this outcome is often referred to as constructive dismissal.  At paragraph 24 of Farber, the Court said:

… By unilaterally seeking to make substantial changes to the essential terms of the employment contract, the employer is ceasing to meet its obligations and is therefore terminating the contract. The employee can then treat the contract as resiliated for breach and can leave. In such circumstances, the employee is entitled to compensation in lieu of notice and, where appropriate, damages.

So, what are “substantial changes to the essential terms of the employment contract”.  Here are are some examples:

  • A demotion combined with a pay cut
  • A change to the method of calculating an employee’s remuneration
  • A significant reduction in an employee’s income
  • Changing a bonus system
  • Requiring an employee to waive a contractual termination clause and substituting a much less favourable termination clause in its place
  • Taking away a sales territory and, in its place, assigning a less lucrative territory
  • Imposing an “at will” probation clause in an existing employee’s contract

These are not the only examples of constructive dismissal and, as always, each case must be decided on its own unique merit.

Recently, courts have been more reluctant to find that bona fide changes made in the face of a reorganization (lately due to the economy) will constitute constructive dismissal.  Some examples of these are:

  • Reporting to a new manager (no other changes)
  • Asking an employee to accept a temporary reduction in commission pay
  • A less than 10% salary reduction (no other changes)

But, is offering a lateral move in terms of pay, but with reduced direct reports or responsibility for performance reviews a “substantial change”?

That’s apparently what was at stake in Meyers v. Chevron Canada Limited. Mr. Meyers was Applications Development Team Lead in the company’s IT department when Chevron reorganized its structure.  He was offered a position as Business Analyst as part of the reorganization, but refused.  Here’s the short version of Mr. Meyers’ reason why as told by the court:

Mr. Meyers takes the position that, objectively viewed, the Business Analyst job offered to him was a demotion.  He points to the fact that he would no longer have any employees directly reporting to him, or employees who he would be responsible for in terms of their performance reviews.

The court looked at and compared the IT and  Business Analyst positions and ultimately disagreed with Mr. Meyers’ claim that changing management responsibilities was a “substantial change” saying:

…I am not satisfied that there should be a term implied into Mr. Meyers’ employment contract preventing Chevron from varying the subject matter of Mr. Meyers’ management responsibilities.  In my view, the evidence does not support the view that the parties contemplated that Mr. Meyers’ role was so rigidly defined.  As noted above, Mr. Meyers’ supervisory role had diminished over time.  An employer requires some latitude to structure the affairs of its operation, and such an inflexible term would shift the balance too far in favour of the employee.

The court found that contrary to Mr. Meyers’ allegation that he had been demoted, the Business Analyst position was a position with significant leadership responsibilities as a project manager responsible for projects budgets.  Notably, at page 60 of the decision, Madam Justice Gerow refers to Mr. Meyers perhaps being too “hasty” in resigning from his position without properly assessing the job changes:

On all of the evidence, I am of the view that Mr. Meyers has failed to establish he was constructively dismissed.  I find that Mr. Meyers was hasty in resigning from his position without determining whether his concerns regarding the job would be borne out.  In my opinion, Mr. Meyers resigned by failing to accept the new position that was offered to him…It follows that Mr. Meyers is not entitled to reasonable notice or damages in lieu of notice.

Action dismissed.  We can now add “a lateral transfer even though some management functions are removed” to that list of changes courts have not found to constitute a constructive dismissal.