You have a contractual agreement with your employer. This is the case regardless of whether or not anything is written down on paper. In the absence of a contract, employers generally have an obligation to maintain you at your same rate of pay, unless you agree otherwise.
If your employer ignores this obligation, and simply tells you that your pay is going to be cut, they are breaching their contractual obligation to you. This potentially creates a scenario known in the legal world as ‘Constructive Dismissal’, also called ‘Dismissal by Disguise’. In the law’s eyes, this is more or less the same thing as being terminated without cause.
In Alberta, you have a right to protest a pay cut and tell your employer ‘No thank you, I would like to continue working for my previously agreed upon rate of pay’. In fact, if you don’t speak up, typically within a one (1) to two (2) month time frame, you are at risk of ‘acquiescing’ to the change and normalizing your new salary. In the court’s eyes, this is the same thing as agreeing to an amendment to your contract, even if nothing is put down in writing.
However, not all pay cuts are created equal. While you do have a right to say ‘No’ to your employer, you also owe yourself an obligation to look for comparable work if you lose your job. In the court’s eyes, this can mean accepting positions that pay you slightly less than your old salary. This can include refusing to accept the very pay cut your employer is trying to impose on you. The consequences of this can mean losing out on your right to all, or a substantial portion, of the severance or termination pay that would otherwise be owed to you.
So, when is it a good idea to say ‘No’ and how do I know if I have been constructively dismissed? In law, as in life, everything depends on context and hard-and-fast rules are hard to come by. Which is why the case of Pavlis v HSBC Bank Canada 2009 BCSC 498 out of British Columbia is such a useful tool for employment lawyers. While technically not binding in Alberta, it lays out a common-sense test that is more of less reflective of the law across most Canadian provinces.
The Test
A salary reduction of up to 9-10% will usually not amount to a constructive dismissal;
A salary reduction of between 14-17% can amount to a constructive dismissal if accompanied by some other significant change to your contract (i.e. demotion, toxic work atmosphere etc.); and
A salary reduction of more than 20% will, in and of itself, usually amount to a constructive dismissal.
If your employer has notified you of a salary reduction of any kind, it is important that you get in touch with an employment lawyer as soon as possible. Ideally, delay signing any paperwork until you have had a chance to speak with an attorney. Recall the one (1) to two (2) month time frame discussed above. You have a limited amount of time to ‘test things out’ before the new arrangement becomes permanent.
Lee McMillan is the founder and managing lawyer of Calgary Litigation. He specializes in civil litigation and employment law in Alberta. Contact Lee today to schedule an affordable one hour phone consultation.