Income cut with purchase company can lead to constructive dismissal

Ann first started working for a small insurance agency in 1980. In 1983 she quit to raise a family but returned to her old employer in 1990 as the office manager. Although she had a set hourly rate for working 30 hours a week, she always received the same pay cheque whether she worked more or less than 30 hours, usually more. She was the office manager and a committed one. She always spent the time to make sure what needed to be done got done.
Probably because of her commitment to the firm, the employer agreed that it would be flexible about how she scheduled her work time. More often than not she worked for eight hour shifts a week giving her one week day off.
The owner of the firm passed away and for a number of years Ann ran the whole show on behalf of the estate trustee. In 1996, somebody new bought the firm and Ann continued in her employment.
It would appear that the new owner was not involved in the day-to-day operation of the business and relied on Ann. Ten years after he purchased the business, in 2006, he claimed to be surprised to learn that Ann considered herself obliged to work only 30 hours a week over four weekdays. To be fair, he might have missed this since Ann’s commitment to the job and willingness to work the extra hours to take care of business had led her to often work more than 30 hours and on five days of the week.
When the owner learned that Ann was often only coming in four days a week, he objected and cut her salary by 20%. Soon after, Ann went off on stress leave and eventually sued for constructive dismissal.
A constructive dismissal is a significant change to the terms of employment without reasonable notice of that change. Cutting somebody’s income is clearly a significant change. If the boss had given Ann 16 months notice of the cut, she would have received reasonable notice and at the end of that time could take it or leave it. No constructive dismissal would have occurred.
At trial it became clear that while the owner may not have been aware of the relationship he had inherited when he bought the business, Ann had done nothing to try to hide it from him. In fact, whether the employer knew it or not, it had payroll documents and other information in its possession which clearly indicated that Ann’s “salary” was really based on a 30-hour work week and that she often only worked four days a week.
At trial the employer argued that regardless of what deal Ann had made in the early ‘90s with her then employer, the new boss had a reasonable expectation that his office manager would be working five days a week on a full time basis.
Ann argued that her voluntary overtime, even as a manager, should not become an obligation just because she routinely worked more than 30 hours a week. Her commitment as an employee and generosity with her time should not be used against her.
The judge agreed. Ann won. Ann was awarded 15 months pay in lieu of notice and of course, part of her costs for the litigation.
Anyone contemplating purchasing a business must be very careful to ask lots of questions. There is always a purchase agreement and attached to it should be representations made by the seller as to all the details of each employee’s employment and any deals that have been made with them.
Too many purchasers of businesses out there think that because they are new to the workplace everything is starting fresh. As Ann’s case shows, that can be an expensive misconception.
As published in the Hamilton Spectator, September 27, 2008
Ed Canning
Ed Canning
P: 905.572.5809