Author: Daniel A. Lublin
Reduction in pay not permitted
Not all companies have turned to mass layoffs in order to weather the current economic storm. There are other devices: many have turned to temporary layoffs, hiring freezes and slashing salaries in order to reduce overhead and maintain the bottom line. But while employees have no legal entitlement to continued employment, they do retain some basic rights.
National equipment supplier DIGI Canada recently learned this the hard way. When its Western Regional Manager, Douglas Stewart, refused to accept a substantial pay cut, he was fired. Stewart sued and he later succeeded in court. This article explains why.
Having been fired by DIGI earlier in his career, Stewart, a lifer in the industry, knew better than to leave the terms of his employment to chance. When DIGI’s president sought to recruit Stewart to resume his old job, Stewart wasn’t about to come cheaply. After rejecting an initial offer, Stewart finally agreed to return based on a promise of a three-year contract and a hefty managerial salary. The terms were committed to ink, and with Stewart’s signature on a contract, he returned.
However, DIGI’s president was replaced a year later, and the new boss, presumably thinking that Stewart had been given a sweetheart deal, soon took aim at the contract, first requesting that Stewart take a pay cut and later tabling various offers to work on a part-commission basis. But, acting on the advice of legal counsel, Stewart knew that DIGI couldn’t unilaterally reduce his pay and he rejected DIGI’s entreaties. Finally fed up with Stewart’s reluctance to renegotiate the deal, DIGI fired him with 13 months remaining on the initial contract.
Disagreeing over appropriate severance, Stewart and DIGI next met in court asking the judge to decide. While, under normal circumstances, the measure of Stewart’s damages would be based on his short tenure and re-employment prospects, Stewart had negotiated a three-year fixed-term contract, which has a very different interpretation. In employment law, employees whose fixed-term contracts are terminated are entitled to be paid for the remainder of the term, unless the contract states otherwise.
In reviewing the contract, an Alberta appellate court recently agreed with Stewart that the contract was unambiguous and that his efforts to find another job after he was fired were reasonable.
Regardless of circumstances, economic or otherwise, employers can’t ignore certain fundamental rights:
- Pay cuts: if a contract does not permit it, a salary can’t be unilaterally reduced. If a change in pay is dramatic, an employee is entitled to reject it — or sometimes even leave and then sue.
- Layoffs: without a contractual term or standard authorizing layoffs, employees may be able to treat themselves as dismissed or sue to recoup lost wages during the period of layoff.
- Severance pay: the true measure of severance is how long it would take the employee to find another job. With a depressed economy, it is open to employees to argue that their severance should be extended.