Pay cuts not permitted, even in a pandemic: Alberta court

Wilson v. Secure Resources Inc.

In the case of Wilson v. Secure Resources Inc. (the decision for which was rendered in March 2022) involving various claims by the employer against the employee and vice versa, the courts gave some helpful guidance for employees who have been subject to an “across the board” pay cut.

Facts

Here are the facts as heard by the Alberta Court of Queen’s Bench:

• Mr. Wilson was an employee of Secure Resources Inc., a fertilizer and agricultural chemical supplier based in Wetaskiwin, Alberta
• The employer cut his pay by 30%; it was intended to be in place on a “temporary basis” as part of a full workforce measure aimed at reducing costs through the pandemic
• Even though Secure Resources stated that the pay cut was temporary in nature, there were no details given such as an actual or anticipated duration of the pay cut
• The pay cut extended over at least two pay periods and was therefore considered to be “more than trifling” in duration.
• The court paid little attention to whether the pay cut was temporary or to how many employees it applied to and focused on the question of whether such a significant cut to Wilson’s salary was a fundamental breach of his employment contract, entitling him to treat the situation as if he had been constructively dismissed

Court Decision

While a temporary pay cut, if it is subject to strict timelines, might save an employer from a constructive dismissal claim, the court didn’t focus on whether the change was temporary or not, but looked more at whether the change was fundamental.

Justice Michael J. Lema said that based on the facts, Wilson could treat the situation as a constructive dismissal, which means that he can pursue a severance package. In this case, the 30% cut he experienced was considered by the court to be a serious and material breach of the employment agreement. The court said that it reflected the intention of Secure Resources to no longer be bound by the employment agreement between itself and Wilson.

READ MORE
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• Severance pay for non-unionized workers in Alberta

Lesson for Employers

• Reason for the pay cut doesn’t matter: Just because an employer cuts everyone’s salary in their entire workforce doesn’t mean they aren’t constructively dismissing their employees. The employer being in financial distress at the time does not change the question of whether the pay cut was a serious breach of the employment agreement. The court referred to these factors as “immaterial”

Lesson for Employees

• How to spot a constructive dismissal: This type of termination can happen if a significant change occurs to an employee’s job duties, compensation, or hours of work. When that occurs, an employee can treat their job as being terminated and receive full severance pay. An employer does not generally have the right to impose significant changes to an employee’s job.
• The threshold for a pay cut: Where a cut in pay is concerned, there is no magic number for how much of a reduction is allowed, but courts in Canada have usually found that a constructive dismissal occurs if an employee’s pay is shrunk by 20% or more.
• Don’t accept a pay cut: Even if a pay cut is significant enough to be a constructive dismissal, employees might lose their ability to pursue severance if they accept the change. An acceptance can either be formal, in writing or due to conduct in the form of acquiescence. In Wilson’s case, the court decided that the issue of whether the employee had acquiesced to the pay cut was a genuine issue.
• Employment contracts may permit pay slash: A change in pay can also have been accepted pre-emptively if the employee signed an employment contract that states that the employer can temporarily reduce wages if the business is struggling. In this case, the court noted that the employment contract did not contain any provision that authorized a pay cut in any particular circumstance.
• Contact an employment lawyer: Contact an Alberta employment lawyer at Samfiru Tumarkin LLP immediately if any major modification is made to your employment. Our team can identify your rights, help you navigate negotiations with your employer, and secure proper compensation should the need arise.