By: Stephanie McDonald and Baljinder (Bal) Singh Tiwana
1. What Is Constructive Dismissal?
Constructive dismissal occurs when an employer unilaterally imposes a substantial change to the essential terms of an employment relationship—without the employee’s express or implied consent.
A constructive dismissal is often the result of a significant change to the employee’s monetary compensation or a significant change to working conditions or other terms of employment. In such cases, the employer’s conduct may make the working relationship untenable, forcing the employee to claim that their employment has been constructively terminated.
Examples of Employer Conduct that May Amount to Constructive Dismissal:
- Significant changes to compensation (e.g., reductions in base salary, commissions, or bonuses)
- Significant changes responsibilities, place of work, reporting structure, etc.
- Creation of a hostile or toxic work environment
- Discriminatory or bullying behaviour
In this article, we focus specifically on significant changes to compensation.
2. Does a Change in Pay Amount to Constructive Dismissal?
Not always.
While not every change in pay constitutes constructive dismissal, a significant and unilateral reduction in an employee’s compensation may meet the threshold necessary for a successful claim.
Courts assess:
- The extent of the change, and
- The surrounding circumstances, including its impact on the employee.
Minor or administrative adjustments, particularly if made in good faith and with reasonable justification, are unlikely to support a constructive dismissal claim.
A. Base Pay
In Ontario, base pay (salary or wages) is a fundamental term of an employment contract.
- A “substantial” reduction in base pay—without the employee’s consent—may support a claim for constructive dismissal.
- Generally, a reduction of 15% or more is considered “substantial” enough to justify such a claim.
- Courts evaluate the change in context, including overall compensation and the reasonableness of the employer’s actions.
B. Variable Compensation (Bonuses, Commissions, Profit Sharing, etc.)
Variable compensation includes earnings tied to individual or company performance (bonuses, commissions, RSUs, DSUs, PSUs, profit-sharing etc).
If these components are clearly set out in an employment contract, or form part of a long-standing pattern of earnings, and the employer does not have a contractual right to make changes to these terms, a substantial change to these terms would likely amount to a constructive dismissal.
C. Other Benefits
Employee benefits, such as pension contributions, health and dental insurance, or vehicle allowances, may also be considered essential if:
- They are explicitly included in the employment contract or consistently provided, and
- They represent a material part of the employee’s compensation.
Unilaterally removing or reducing such benefits, without a contractual right to do so, particularly if the impact is “substantial”, may also give rise to a constructive dismissal claim.
3. Does the Contract Allow the Employer to Make Unilateral Changes?
Some employment contracts contain variation clauses, allowing for limited changes to certain terms in the future without the employee’s consent.
However, courts interpret these clauses narrowly. They typically do not authorize significant changes to core terms like base salary or substantial compensation elements.
i) Base Pay
It is extremely rare for a contract to validly allow unilateral salary reductions. Attempting to reduce base pay without the employee’s consent is usually a fundamental breach of the employment contract and may justify a constructive dismissal claim.
ii) Variable Compensation
Even if a bonus or commission is labelled “discretionary,” employers cannot arbitrarily or significantly reduce it without reasonable justification and good faith—especially when:
- It consistently formed part of the employee’s income, or
- It accounts for a substantial portion of total compensation.
iii) Other Benefits
Unless the contract clearly allows the employer to alter specific benefits, any substantial and unilateral change to those benefits—especially if detrimental to the employee—could breach the employment agreement and support a constructive dismissal claim.
4. What Should You Do if Your Employer Changes Your Pay Without Your Agreement?
If your employer makes a significant change to your compensation without your consent, consider the following:
- Document everything: Keep records of all communications (emails, letters, texts) regarding the change. Ask for written confirmation, including the effective date of the change to pay.
- Do not quit immediately: Do not resign unless you’ve spoken with an employment lawyer and determined this is the appropriate course of action.
- Do not remain silent: Failing to object may be seen as acceptance of the new terms. Clearly express your objection in writing.
- Seek legal advice promptly: Consult an employment lawyer to understand your legal rights and the best course of action.
- Consider a constructive dismissal claim (if appropriate in the circumstances): If the pay reduction is substantial, you may be entitled to compensation, including termination pay, severance, damages, or other legal remedies.
Conclusion
A substantial, unilateral change to an essential term of your employment contract—especially your compensation—should never be taken lightly. If your employer changes your pay without your agreement, consult with an employment lawyer right away. Understanding your rights will help you make an informed decision and potentially preserve your entitlement to legal remedies.
Workplace Sage Legal is here to help. Book a consultation today to protect your rights and take the next steps with confidence.
DISCLAIMER: This article/blog is provided for educational/informational purposes only. The views expressed are solely those of the author(s) and should not be attributed to any other party not listed as the author(s).
While reasonable efforts have been made to ensure the accuracy of the content provided, it does not constitute legal advice. Prior to relying on any aspect of this article, you should consult with a suitably qualified legal professional promptly in your relevant jurisdiction, to obtain advice tailored to your individual circumstances
Nothing in this article should be interpreted as forming a solicitor-client relationship or construed as a solicitation for legal services.
