What Can I Do If My Employer Reduces My Pay In Ontario?

You may be surprised to learn that an employer can make significant changes to the terms of your employment without your input and can even cut your wages – up to a certain point.

While you may learn something more about your employment rights by reading this post or others like it, you should always speak to an employment lawyer in Toronto about any questions or issues you have regarding your work. Many offers free consultations and are sincerely concerned about protecting your rights.

If your employer has reduced your pay or made changes to your employment, keep reading to learn about your options.

By How Much Can an Employer Reduce Your Pay?

While compensation is a major component of an employment agreement, employers are allowed to make changes to that agreement as long as those changes don’t fundamentally change the nature of the employment to the point that it is substantially different than what the employer and employee first agreed to.

This is considered to be a “constructive dismissal,” and it applies to other changes an employer might make, such as a change or reduction in hours or giving the employee new job tasks.

When it comes to pay cuts, one of the most referred to decisions is one made by the B.C. Supreme Court, in the case of Pavlis v HSBC Canada. In it, the court reviewed several cases from different provinces to help it decide what percentage of an employee’s compensation (including bonuses and benefits) would constitute a fundamental breach of the employment contract and, therefore, a constructive dismissal.

While the numbers below are not to be thought of as ‘written in stone’ and every case is decided on its own specific circumstances, these ranges can act as a useful guideline. The court stated that a pay cut of:

• 9-10% of an employee’s average salary does not fundamentally change the contract.
• 14-17% may be considered a breach if it was combined with another significant, unilateral change.
• 20-46% (and presumably any higher amount) by itself is enough to breach the employment contract and is constructive dismissal.

However, if your employer provides you with advance warning that changes will be occurring (i.e., telling you in advance about a change to compensation three months down the road), then the changes may be considered acceptable regardless of what they are because you had advance notice and could have looked for new employment during that time if you were unhappy with the upcoming change.

What Can You Do About a Major Pay Cut or a Constructive Dismissal?

If an employer constructively dismisses you by unilaterally slashing your pay, hours or making other fundamental changes, your options are to:

• Accept the change and do nothing.
• Tell your employer that you do not accept the change and ask them to return to the original terms of the employment contract.
• Make a claim for constructive dismissal but continue working until you find a new job to mitigate your losses.
• Tell your employer that you’ve been constructively dismissed by the new working conditions, quit and pursue legal action.

Before making any decisions, especially the decision to quit, always speak to an employment lawyer first. Even if you feel that you were clearly constructively dismissed, proving it in court can be challenging. Even if your lawyer agrees that you have a strong case for constructive dismissal, you still have to act in a way that preserves your rights and entitlements.

Your Decision and its Potential Impact

If you decide to make a legal claim for constructive dismissal, you would be seeking compensation for the severance and termination pay that you are legally entitled to.

Under the Employment Standards Act, 2000, that amount is based on the pay you would have received during the time your employer was obliged to give you as a notice period before your termination. You may also be entitled to severance pay if you had been with the employer for over five years. Keep in mind that these are the legal minimums and that termination/severance pay is often higher.

On the other hand, if you accept the pay cut, you are effectively giving your employer permission to continue reducing your wages moving forward and trying to claim constructive dismissal at a later date does not have a realistic chance of success.