Business decisions may cause a company to relocate from one city to another, or even from one province or territory to another. How these relocations will affect employees is a question that unfortunately isn’t necessarily a major consideration in the original decision. In fact, in many cases this issue is relegated to the Human Resources department.
LeadingEdge is often asked for opinions and recommendations regarding the handling of these situations. The intent of this two-part article is to provide readers with;
• some background details on conditions of employment,
• the legislative provisions within employment and labour standards,
• opinions and advice on how the business can best handle the transition during the relocation, and
• the Canada Revenue Agency’s guidelines on the tax treatment of relocation incentives that are often offered to employees as an enticement.
As with any situation that may be deemed a change to a condition of employment, we strongly recommend that employers obtain legal advice.
When an employer hires an individual, the employment contract defines the terms of the relationship including conditions of employment. The conditions described in the contract should include things like; standard hours of work, breaks if applicable, whether or not overtime applies, name of direct report or Supervisor/Manager, the location of work or where the individual reports to, travel if required, etc. If the individual accepts the offer of employment and signs the employment contract, he or she is agreeing to be bound by the terms and conditions contained therein.
Some jurisdictions in Canada, through their Employment/Labour Standards legislation, do address situations that may give rise to a change in employment conditions along with the requirements necessary to do so. Where legislation is silent on the issue, the recommended practice is for employers to provide employees with as much notice as possible. A suggested guideline for giving employees notice is to use the notice period specified for termination of employment. Generally speaking this would result in at least eight weeks notice of the pending change/s.
Even though an employer provides ample notice of the change there is always the possibility that an employee deems the change unreasonable. When this situation arises, employers often find themselves dealing with “constructive dismissal”.
The Ontario Ministry of Labour’s Web site provides the following information on the topic “constructive dismissal” – www.gov.on.ca/LAB/english/es/factsheets/fs_termination.html.
A constructive dismissal may occur when:
• an employer makes a significant change to a fundamental term or condition of an employee’s employment without the employee’s actual or implied consent and
• the employee resigns within a reasonable period of time after learning of the change.
An employee may be constructively dismissed if the employer makes changes to the employee’s terms and conditions of employment that result in a significant reduction in salary or a significant change in such things as the employee’s:
• work location
• hours of work
• authority or position, and
the employee resigns in response, within a reasonable period of time.
It may also include situations where an employer significantly harasses or abuses an employee, or an employer gives an employee an ultimatum to “quit or be fired” and the employee resigns in response, within a reasonable period of time.
Constructive dismissal is a complex and difficult subject. An employee who thinks he or she may have been constructively dismissed should contact the Ministry of Labour for further information.
According to the Alberta Employment Standards Code, if an employer intends to reduce an employee’s wage rate, overtime rate, general holiday pay, vacation pay or termination pay, the employee must be notified before the start of the pay period in which the reduction is to take effect. However, these rates must always be at least the minimum required by the legislated standards.
Common Law Provisions
Similar details to Ontario’s provisions were obtained from Web site of The Law Office of Grossman, Grossman and Gale LLP – http://www.grosman.com/index.html.
What is Constructive Dismissal?
The conduct of an employer under certain circumstances may entitle the employee to consider the employment relationship to have been terminated even though the employer considers it to be continuing. Where an employer makes a fundamental change to an essential term of the employment relationship this will allow the employee to treat the employment relationship as having come to an end and request damages for wrongful dismissal on the basis that they have been constructively dismissed. The dismissal is said to be “constructive” in the sense that the actions of the employer have the practical effect of terminating the employment relationship that had been in existence, as opposed to an express termination involving the employer telling the employee “your employment is terminated effective immediately” or words to that effect.
Constructive dismissal has always been a potential mine field for employees. In recent years, Ontario courts have significantly limited the availability of the remedy of constructive dismissal.
Only actual conduct by the employer and not the perception of that conduct by the employee can potentially support a constructive dismissal claim. In other words, the employee’s subjective opinion or personal reaction to the change is irrelevant. What is relevant is whether, from an objective standpoint, the change to the employment relationship was fundamental in nature.
In practice, only certain types of conduct by the employer have been held to constitute constructive dismissal in law. These include:
• a transfer involving a significant geographic relocation. For example, a transfer from Toronto to Montreal could well represent a constructive dismissal, whereas a relocation from Scarborough to Mississauga would almost certainly not constitute a fundamental change to the employment relationship;
• a fundamental demotion involving reduced responsibilities and/or positioning within the corporate hierarchy; reductions in salary, bonus and/or employee benefits
Appropriate Reaction to Constructive Dismissal
Even where the employer has fundamentally changed the employment relationship, there are two situations in which the employee is taking a very large gamble in alleging constructive dismissal:
• where the individual has failed to assert a constructive dismissal within a reasonable period of time following the fundamental change to the employment relationship: This may constitute “condonation” in law;
• where the individual has the opportunity to continue to receive salary and benefits which are equal to or reasonably comparable to those which they were receiving before the fundamental change and where the working conditions are not substantially different or the work demeaning or where the personal relationships involved are not acrimonious. This is because the constructively dismissed employee has a duty to act reasonably in attempting to minimize the loss from the constructive dismissal, which could include staying on, at least until you find another job.
Further supportive information on the subject matter from Canadian HR-Online Web site – www.hr-online.com – reproduced with permission from Jeff Hill.
An employee may make the final decision to leave (or not turn up) but if some action by the employer was a principal contributing factor leading directly or probably to the termination, then the employee may sue for constructive dismissal. The employer’s action must be serious enough to effectively repudiate the employment because it breaches something fundamental in the relationship of trust and confidence. The constructive dismissal occurs whether or not the employer believes that the employment relationship has ceased.
Primarily, constructive dismissal results from the employer making a unilateral change to the employment relationship. While employers have a right, indeed a necessity, to make changes throughout the organization as they see fit, the employment contract is not malleable.
Constructive dismissal can only stem from the employer’s actual conduct, not the perception of that conduct by the employee. The employee’s subjective opinion and personal reaction are irrelevant. The issue rests on whether, from an objective viewpoint, the change to the employment relationship was fundamental in nature.
In practice, only certain types of conduct by the employer have been found to constitute constructive dismissal. It most commonly occurs when an employer tries to force an employee into a new position. Employees may not be forced to accept a new position if:
• the new compensation scheme is considerably altered in amount or in the manner it is earned (salary, bonus, benefits; salary to commission, hourly to piece-work, etc.);
• the new working conditions are substantially different (for example, a transfer involving a significant geographic relocation);
• the change is a fundamental demotion involving reduced responsibilities and/or positioning within the corporate hierarchy;
• the new work is demeaning in any manner; and,
• the personal relationships involved are acrimonious or would be acrimonious if the employee accepted the position.
In the recent past, courts have set the standard for constructive dismissal somewhat higher, but in a recent case an employer’s cancellation of one of an employee’s two bonuses was ruled a constructive dismissal.
In the second part of this series we will address employee obligations in these circumstances as well as “reasonable time period”. Also the tax implications of relocations, a summary and some recommendations on handling similar circumstances.
Kimberley Fiume is Director, Client Services for the LeadingEdge Payroll Group and Managing Editor of Payroll ALERT.