Can an employer unilaterally change the essential terms of an employee’s employment contract?

British Columbia, Canada

The following excerpt is from WCAT-2015-03134 (Re), 2015 CanLII 96126 (BC WCAT):

In this regard, the leading case is Farber v. Royal Trust Co., 1997 CanLII 387 (SCC), [1997] 1 SCR 846, where the court stated: 24. Where an employer decides unilaterally to make substantial changes to the essential terms of an employee’s contract of employment and the employee does not agree to the changes and leaves his or her job, the employee has not resigned, but has been dismissed. Since the employer has not formally dismissed the employee, this is referred to as “constructive dismissal”. By unilaterally seeking to make substantial changes to the essential terms of the employment contract, the employer is ceasing to meet its obligations and is therefore terminating the contract. The employee can then treat the contract as resiliated for breach and can leave. In such circumstances, the employee is entitled to compensation in lieu of notice and, where appropriate, damages. 25. On the other hand, an employer can make any changes to an employee’s position that are allowed by the contract, inter alia as part of the employer’s managerial authority. Such changes to the employee’s position will not be changes to the employment contract, but rather applications thereof. The extent of the employer’s discretion to make changes will depend on what the parties agreed when they entered into the contract…. 26. To reach the conclusion that an employee has been constructively dismissed, the court must therefore determine whether the unilateral changes imposed by the employer substantially altered the essential terms of the employee’s contract of employment. For this purpose, the judge must ask whether, at the time the offer was made, a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed. The fact that the employee may have been prepared to accept some of the changes is not conclusive, because there might be other reasons for the employee’s willingness to accept less than what he or she was entitled to have. 27. Moreover, for the employment contract to be resiliated, it is not necessary for the employer to have intended to force the employee to leave his or her employment or to have been acting in bad faith when making substantial changes to the contract’s essential terms. However, if the employer was acting in bad faith, this would have an impact on the damages awarded to the employee. In the case at bar, there is no question of bad faith by the respondent, which was acting in good faith in reorganizing its hierarchical structure. Thus, the only damages in issue are those that would be awarded in lieu of notice.

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