This is an update to our previous article Employers Beware: Cost-Cutting Strategies May Cost You In Court which summarizes the findings of the Court of Queen’s Bench of Alberta in Kosteckyj v Paramount Resources Ltd, 2021 ABQB 225 (“Kosteckyj”).
Recently, the Alberta Court of Appeal partially overturned the lower Court’s decision in Kosteckyj. The Court’s decision reaffirms the test for constructive dismissal and finds that in some circumstances an employee’s failure to object to a change in employment terms within a reasonable period can amount to acceptance of that term, ultimately defeating a claim of constructive dismissal.
Kosteckyj (the “Employee”) had been employed by the Paramount Resources (the “Employer”) as an engineer since 2013. In response to the COVID-19 pandemic, the Employer implemented a cost reduction program, which reduced the Employee’s base salary and suspended certain other benefits, effective April 1, 2020.
In order to further reduce costs, the Employer terminated a number of employees without cause, including the Employee, on April 22, 2020.
The Employee commenced a claim against the Employer alleging she had been constructively dismissed on April 1, 2020, when the cost reduction program was implemented. The Employer argued that it did not constructively dismiss the Employee, but rather terminated her without cause on April 22, 2020. It was not disputed that the Employee was owed payment in lieu of notice.
The lower Court found the Employee had been constructively dismissed and awarded damages from April 1, 2020 up until the end of the common law reasonable notice period. The quantum of damages was calculated using the Employee’s renumeration prior to the implementation of the cost reduction program.
The Court of Appeal overturned the decision of the lower Court in part, finding that the Employee had accepted the reduction in her overall compensation by failing to object to the change within a reasonable amount of time (which in these circumstances was 10 business days).
In coming to its decision, the Court of Appeal reaffirmed that constructive dismissal may occur in the following circumstances:
- An employer fails, from an objective perspective – a reasonable person in the employee’s situation – to substantially discharge an essential obligation in the employment contract to the detriment of the employee, and the employee, (i) within a reasonable time; (ii) declines to accept the new terms of employment.
- An employer treats an employee in a disrespectful manner and makes the employment relationship intolerable.
While the Court of Appeal agreed with the lower Court that the compensation reduction was a substantial change to the essential obligations under the employment agreement, the Court emphasized the fact that the Employee continued to work at the same office carrying out the same duties as prior to the implementation of the cost reduction program until the date of her termination. During this time, the Employee never communicated that she did not agree to the reduction in compensation.
In the circumstances, the Court unanimously found that the 25 days within which the Employee worked following the salary reduction was sufficient for the Employee to decide whether she accepted the employment changes or not. Justice Wakeling went a step further and said it was reasonable for the Employee to decide within 10 business days (up to 15 business days for employees without the same knowledge and attributes of the Employee) whether to accept or reject the reduction in compensation, although this “bright-line test” was not adopted unanimously by the Court. Since the Employee made no objection, the Court concluded that she had accepted that change. The Court declined to comment on how much time would be reasonable for an employee to decide whether to reject or accept a reduction in compensation when the employer also alters other terms and conditions of employment.
Based on this conclusion, the damages awarded to the Employee were calculated from April 22, 2020 rather than April 1, 2020. Further, since it was found that the Employee had not been constructively dismissed, the Employee’s damages were calculated based on her reduced compensation in effect at the time of termination.
What does this mean for Employers?
While this decision is helpful for employers as it offers guidance for how long employees have to accept or reject a reduction in compensation, it is critical for employers to consider the specific circumstances and changes being made. 10 to 15 business days may not be long enough where the employer changes employment duties or location.
Further, this decision cannot be relied upon to determine how long every employee has to decide whether to accept or reject a change in employment terms – this particular employee in this case was an engineer and relatively sophisticated. We would emphasize that it is still best practice to obtain prior written consent from employees with respect to any fundamental change to the terms and conditions of employment. This best protects employers against potential claims of constructive dismissal. However, where an employer decides not to seek prior consent, it is helpful to know that an employee will have to reject a change within a reasonable period of time. If they remain silent, a Court may conclude they have accepted the change implemented by the employer by virtue of continuing their employment without objection.
We recommend always seeking legal advice prior to implementing any changes to the terms and conditions of employment. Our labour and employment team understands how difficult these decisions can be and would be pleased to assist you.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
 Kosteckyy v Paramount Resources Ltd, 2022 ABCA 230, at paras. 51 – 52.