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Employee remedies for big wage cuts illusory

Terminating staff is not the only way employers are trying to deal with these economic times. Finding people who have actually received even a cost of living raise this year is like looking for a needle in a haystack. Many employers have announced pay freezes. Some have imposed across-the-board reductions in pay from 5% to 10%.
 
Others have imposed work-share or shortened work week programs. If you lose one day a week your income has dropped by 20%. People who have worked under the same commission program for years are suddenly being told that the structure and targets are changing. Translation…they get paid less.
 
So, what is an employee to do? What rights do they have?
 
While non-unionized employees do have some rights, few will want to exercise them.
 
You are entitled to reasonable notice of any significant changes to the terms of your employment. What is “reasonable notice” is different for each person based on their age, seniority and level of responsibility.
 
Let’s imagine a 45-year-old, ten-year supervisor named Joanne. If Joanne was terminated she probably would be entitled to nine months working notice or pay in lieu of that notice, possibly ten on a good day. That means that Joanne could be told by her employer that nine months later she will be out of work. Except for some possible minimum statutory payments, at the end of nine months she simply gets her last pay cheque and it’s over. There is no “package”.
 
If I, as Joanne’s employer, could tell her that she’s out of work nine months from now without consequence, I can also tell her that nine months from now she will be losing 30% of her pay. It’s a significant change but I have given her reasonable notice. There is no constructive dismissal and I have not breached the implied term of our agreement that she will be provided with reasonable notice of any big changes.
 
But if I tell Joanne that next week she is losing 30% of her pay, there could be a problem.
 
Joanne has two theoretical options, with this big a drop in pay with no notice (as opposed to just 5% or 10%). She can take the position that I have effectively terminated her, constructively dismissed her, walk out the door and sue for wrongful dismissal. The problem there is that, even assuming Joanne gets a severance package, given these economic times, who is going to be paying her mortgage a year from now?
 
Joanne has another option. She could write a letter to her employer letting it know that she objects to this significant change without notice and that she reserves her right to pursue legal remedies at a later date. As long as she brings the claim within two years, Joanne can sue for the lost 30% over the nine-month notice period she should have been given of the change. Joanne indicates in the letter that she is not quitting and will continue to work to make what money she can for her family.
 
This kind of letter is written so that if Joanne ever does bring that claim the employer can’t claim that she condoned the change by her silence. But unless Joanne contemplates having new work somewhere else within two years, this letter is a waste of paper. Most employees are not prepared to arrive at work one day with a Statement of Claim or a demand letter from a lawyer. It would likely put them on the chopping block for the next round of terminations..
 
In better economic times when Joanne could feel confident about finding new employment this letter might have been useful. In these economic times, it’s just dangerous. A job is better than a law suit
 
Although the law is grey, many lawyers would tell you that a 5% or 10% reduction is not a significant enough change to warrant either of these remedies. Losing one or two days a week to work-share or shortened work weeks, 20% or 40%, might constitute a significant change in some situations but the vast majority of employees will conclude that toughing it out  until better times with some percentage of your wage is better than the unemployment line, with or without a severance package.
 
The reality is that the economic duress that many people are experiencing right now means employers can get away with doing things that they would not dare to do in better times where skilled workers are at a premium.
 
While that’s not a good thing for all the Joannes out there, one could argue that if a company, by taking these actions, can survive these times to continue to provide meaningful employment to many people long into the future, it’s not such a bad thing.
 
Admittedly, that’s small comfort to a family trying to cut 30% from an already tight household budget. When Joanne is telling her kid that there’s no money for hockey this year, she clearly won’t be empathetic to the plight of her employer.
 
We can only hope that when these times pass the employees who stuck it out and tolerated the changes will be remembered and rewarded by their employer. Perhaps a na�ve hope but it springs eternal.


Ed Canning is a partner practicing in the Labour & Employment Group at Ross & McBride LLP.

As published in the Hamilton Spectator, April 13, 2009.
 
Ed Canning
Ed Canning
P: 905.572.5809
ecanning@rossmcbride.com