Reducing Pay and Working Hours During COVID-19

Many Ontario businesses have had to make tough decisions with respect to their employees due to COVID-19. For some businesses, layoffs and terminations have been necessary. For others, reducing pay and working hours helped the business stay afloat without termination employees.

For businesses that have continued to operate and for those that have begun to recall employees to work, employers may have considered reducing their employees’ pay or working hours to maintain operations. Reducing pay or hours can, however, open an employer up to liability for damages in court if not implemented properly.

The Risks of Cutting Pay and Hours for Employees

Ontario case law considers an employee’s compensation to be a fundamental term in any employment agreement. This includes both pay and working hours, as hours are usually tied to an employee’s pay.

A unilateral or improper change can make an employer liable for damages for constructive dismissal. This means an employer has indicated through their actions that they no longer wish to be bound by the employment agreement, rendering the employee effectively dismissed and owed payment in lieu of notice.

Damages for constructive dismissal can be significant and as such, employers should be extra cautious and avoid opening themselves up to liability during these uncertain times, and avoid drastically reducing an employee’s hours or pay.

When a Reduction in Hours or Pay  is Legal

In Dechene v Dr Khurrum Ashraf Dentistry, 2012 ONSC 4594, the Ontario Superior Court determined that an employer can propose a fundamental change to the employment agreement if the change has not been unilaterally implemented.

By doing this, the employer has the opportunity to discuss and negotiate any changes with the employee to be affected and work out any potential disagreements. If the employee then agrees to the change and continues working with it implemented, a claim for constructive dismissal becomes less likely.

There are additional methods that can help employers avoid constructive dismissal claims as a result of reducing pay or working hours. One such method includes providing reasonable and clear notice of the intended change and informing the employee that failure to accept the change will mean dismissal at the end of the notice period. Another method is to provide the employee with consideration for the change, meaning something beneficial is provided to the employee to offset the negative impact on him or her. However, what is considered “reasonable” and what falls under “consideration” is arguable.

Depending on the facts, a pay cut of up to 10% without any other unilateral changes to the employment agreement might not amount to a constructive dismissal in Ontario. However, even a 12% reduction in compensation can cause an employer to become liable for damages, as demonstrated in the case McGuinty v 1845035 Ontario Inc (McGuinty Funeral Home), 2019 ONSC 4108.

Considering the risks involved in an improper change to pay or hours, employers should consult an employment lawyer before implementing any such changes.

Contact Us

If you are an employer and want to know more about how best to implement a change to the pay or working hours of employees, or an employee  who has had your pay or hours reduced, our team of experienced legal professionals at Achkar Law can help. Contact us by phone toll-free at 1-(800)771-7882 or email us at [email protected] and we would be happy to assist.

If you are a small or medium size company looking for full-service support, visit our CLO program page for our strategic solutions.

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Disclaimer: This blog is not intended to serve as, or should be construed as legal advice, and is only to provide general information. It is in no way particular to your case and should not be relied on in any way. No portion or use of this blog will establish a lawyer-client relationship with the author or any related party. Should you require legal advice for your particular situation, fill out the contact form, call 1-(800)771-7882, or email [email protected].