Faced with significant changes to their compensation, employees can either leave — or lose — their jobs. Many will then turn to the courts. However, as I often write in this column, winning or losing in an employment law case can have as much to do with the judge you happen to draw as with the relative merits of your claim. Here are three cases that illustrate this uncertainty.
After 36 years at the Bank of Nova Scotia, David Chapman resigned, arguing that a reduction in his salary and the bank’s failure to honour a promise amounted to his termination. In a three-year period, Chapman’s base salary had remained consistent, but his overall salary had declined by 13 per cent through a reduction of incentive compensation such as stock options, bonus pay and shares.
Following the third straight yearly decrease, Chapman met with the bank and protested the decline in his pay. Believing there was not a sufficient interest in remedying the problem, Chapman resigned, feeling that he had no other option but to leave.
The legal doctrine of constructive dismissal permits employees to treat fundamental changes to their jobs as effectively amounting to their termination. An adverse change in an employee’s pay will usually meet this test. However, Chapman’s case was dismissed. The court reasoned that, despite the decline in his total pay, he had always been paid on a variable scale and still fell within the applicable salary range for his position.
A recent decision from British Columbia had the same result for Marcia Pavlis. An Investment Advisor with HSBC Securities, Pavlis argued that her employer’s refusal to pay trailer fees and disability insurance in a timely fashion represented a fundamental breach of her employment contract, such that she could resign and then sue as if she had been dismissed.
However, Pavlis was not able to show that the changes to the compensation were critical enough to consider her employment as at an end. n dismissing her case, the court commented that a nine to 10 per cent reduction in salary will not usually amount to a constructive dismissal, while anything more than a 15 per cent change in pay could meet that test. As the changes to Pavlis’s salary had been negligible, she had to accept them or voluntarily resign.
Contrast these cases with the recent Ontario decision involving Lawrence Doran and Ontario Power Generation Inc. Here, a number of changes were established that would have had the effect of reducing Doran’s compensation by 15 per cent. Although OPG argued that the changes were applied consistently to all executive-level employees and were necessary from a business perspective, the court was not convinced. It found that Doran was permitted to treat his employment as at an end given the changes to his pay, in which case he would receive the same severance pay as if he had simply been fired.
What can employees and employers take from these cases?
- Whether a change in compensation amounts to a breach of contract turns, in large part, on how much money the employer fails to pay, relative to the employee’s total compensation.
- Judges are human. They will decide cases based on their subjective predispositions of right and wrong as much as they do based on precedent or merit.
Daniel A. Lublin is an employment lawyer focusing on the law of dismissal. He can be reached at dan@toronto-employmentlawyer.com.
