Carscallen Blog

Alberta Court says Cost-Cutting Measures Were Constructive Dismissal of Employee

Posted by Carscallen LLP on May 12, 2021 7:45:00 AM

Written by Catherine A. Crang, Q.C. and Suzanne M. Porteous 

The Alberta Court of Queen’s Bench recently released its reasons for judgment (“Reasons”) in the case of Kosteckyj v. Paramount Resources Ltd.[1], holding that an employer’s implementation of company-wide cost-cutting measures in April 2020 resulted in the constructive dismissal of the Plaintiff, an employee of the company at the time these measures were implemented and who was subsequently terminated a few weeks later at the end of April 2020. As a result of finding constructive dismissal, the Court awarded the Plaintiff damages in the amount of $107,247.97 (plus interest), as well as awarding her costs.

Details of the cost-cutting measures implemented by the Defendant

The Defendant’s “Cost Reduction Program” (the “Program”), announced to employees of the company on March 27, 2020, for an April 1, 2020 implementation, included the following measures:

  • a salary reduction of 10% for all employees;
  • a salary/fee reduction of 20% for all Directors and the CEO;
  • a suspension of its 6% RRSP Contribution Program; and
  • the delay/cancellation of the company’s 2019 Bonus Program.

The Plaintiff’s salary and benefit reductions from the Program

The Plaintiff, who was a senior engineer employed by the Defendant for 6.5 years at the time of her dismissal, experienced a 16% collective reduction in her salary and RRSP contribution suspension prior to her employment being terminated, not including the other forms of her compensation reduced by the Program.

Ultimately, the Court found on its review that the total reduction to the Plaintiff’s compensation was between 16.65% to 20%[2], including:

  • a salary reduction of 10%;
  • a suspension of the RRSP contribution valued at 6% of her salary;
  • the delay/cancellation of the Defendant’s 2019 annual bonus program (offered as restricted share units ); and
  • a loss of the Plaintiff’s other benefits with the Defendant, including:
    • health and dental benefits and her out-of-pocket health and dental expenses;
    • a $1,000 annual wellness account;
    • a proportional share of the amount for her benefits for life and accidental death and dismemberment insurance;
    • the cost of maintaining her professional dues (APEGA) during the reasonable notice period; and
    • costs of upgrading her skills in her search for employment.

 
 
 
 
 
 
Key findings by the Court

Some of the Court’s key findings in holding that the Defendant’s implementation of the Program constituted a constructive dismissal of the Plaintiff include findings that:

  • the Program was a unilateral change to the Plaintiff’s employment contract, and there was no express or implied term in the employment contract giving the Defendant the authority to make such a unilateral change[3];
  • the compensation reduction imposed by the Program was detrimental to the Plaintiff and a breach of her employment contract occurred[4];
  • the Plaintiff did not implicitly agree to a reduction in her compensation, contrary to assertions by the Defendant that it considered the fact that the Plaintiff continued working from April 1, 2020 (when the Program was announced to employees) to her termination on April 21, 2020 as evidence of her agreement with these changes, “because otherwise, she could just walk away”;[5]
  • there is no obligation on an employee to advise an employer of the employee’s position on constructive dismissal before termination; as in this case, the employee might not know that they are going to be terminated after an act of constructive dismissal (for the Plaintiff, termination of her employment was 25 days after implementation of the Program)[6];
  • the effect of the Program significantly affected the Plaintiff’s compensation[7];
  • the Plaintiff was entitled to nine months’ notice starting April 1, 2020 to December 31, 2020[8]; and
  • the Plaintiff’s damages award included compensation for her lost benefits.

 

The effect of a downturn in the economy

This decision could have wide-ranging implications for cash-strapped companies implementing similar cost-cutting measures and/or layoffs during turbulent economic times, both as a result of Alberta’s economic downturn and the COVID-19 pandemic. Although both the Plaintiff and the Court accepted that the Defendant’s implementation of the Program was a legitimate business reaction to turbulent economic times[9], it nonetheless awarded the Plaintiff significant damages due to her constructive dismissal (and the insufficient reasonable notice period originally offered to her).

The Court specifically considered what effect the downturn in Alberta’s economy would have on the reasonable notice period. In canvassing the relevant holdings on this point, the Court agreed with prior judgments that:

  • adverse economic conditions tend to increase the notice period because they usually contribute directly to the estimated time required to find replacement employment[10];
  • a depressed economy or sector is only one factor and should not be given disproportionate effect[11];
  • if the notice period is to provide employees with sufficient opportunity to seek new employment, then the state of the industry in which their employment lies is a factor[12]; and
  • in this case, to provide the Plaintiff with sufficient opportunity to seek new employment, it is appropriate to consider, as one of the factors, the current challenges for the oil and gas sector which both parties agree exist[13].
Mitigation efforts by the Plaintiff

The Court in this case also considered the effects of the economic downturn in Alberta on the Plaintiff’s field of expertise, as well as the effects of the COVID-19 pandemic on the Plaintiff’s mitigation efforts. In holding the Plaintiff’s mitigation efforts were adequate especially in light of the COVID-19 pandemic[14], the Court noted: “Not only had there been an economic downturn in oil and gas before the pandemic took hold, looking for a new job in the midst of pandemic when so many businesses were assessing what resources they required and were changing all of their communication practices, must have had a negative effect on every job seeker’s ability to seek a new opportunity.”[15] This holding should be taken into account by any business currently implementing extensive cost-cutting measures, including salary reductions and/or employee lay-offs in Alberta. We recommend any business considering such measures to consult with experienced legal counsel before implementing any changes or workforce reductions.

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[1] Kosteckyj v. Paramount Resources Ltd., 2021 ABQB 225 [Kosteckyj].

[2] Kosteckyj at para 41.

[3] Kosteckyj at paras 34-35; Potter v. New Brunswick Legal Aid Commission, 2015 SCC 10; Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402.

[4] Kosteckyj at para 39.

[5] Kosteckyj at para 35.

[6] Kosteckyj at para 37.

[7] Kosteckyj at para 41.

[8] Kosteckyj at para 57.

[9] Kosteckyj at para 39.

[10] Kosteckyj at para 53; Hunsley v. Canadian Energy Services LP, 2020 ABQB 724 at paras 26-27.

[11] Ibid.

[12] Kosteckyj at para 54.

[13] Ibid.

[14] Kosteckyj at para 84.

[15] Kosteckyj at para 81.

Topics: Employment, Labour and Human Rights Law

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