My Business is Suffering: Can I Change Employee Compensation Schemes in an Attempt to Save the Business?

| May 24th, 2017 | No Comments »

Employee compensation is one of the most fundamental aspects of an employment contract. In most cases, a fundamental change in an employment contract would result in damages if litigated by the employee. An employee subject to such changes could claim ‘constructive dismissal’, which means that the employee’s employment terms were altered substantially enough to force him/her to resign.  The employee can then seek damages for wrongful dismissal.

There are exceptions, however, that would not typically trigger a constructive dismissal. In an attempt to save the business, small changes to all employees under the business will normally not warrant a constructive dismissal and would therefore be legal. Such changes should align with the goal of saving the business. For instance, a change from profit sharing to commission for a large group of employees may allow a business to be more profitable, thus being consistent with the goal of saving the business. The change should be minimal and reasonably necessary to save a struggling business. To illustrate this, consider the case of Pullen v. John C. Preston Ltd (Preston Ltd).

Pullen was hired by Preston Ltd. in 1979 as a sales manager. His base salary was $30 000 per year plus some profit sharing. Preston Ltd. was experiencing significant financial difficulties during hard economic times. Preston Ltd. reduced Pullen’s base salary by $3 000 and changed Pullen’s profit sharing compensation to a commission based compensation scheme. Further, Preston Ltd. also changed Pullen’s job description, leaving Pullen to feel as though he was a salesman rather than a manager. Pullen left his employment and claimed constructive dismissal. The court ruled that this was not constructive dismissal. Not all of Pullen’s managerial duties were taken away, and the changes to Pullen’s compensation were viewed as genuinely necessary in light of Preston Ltd.’s financial struggles.

This case shows that changes to compensation can be made while a company faces financial difficulties. However, financial difficulties must be severe enough to require changes to employee compensation schemes in order to save a business. When dealing with a similar situation, employers must be careful as changes to compensation is a fundamental term of an employment contract. It is important to seek advice from an employment law expert, especially when seeking to implement such changes to a large group of employees. Whitten and Lublin Employment Lawyers have the employment law experts to assure you are in legal compliance and do not suffer additional hardships due to costly litigation during tough financial times.

Geographic Relocation and Constructive Dismissal

| February 17th, 2017 | No Comments »

Constructive dismissal is when an employer alters the fundamental conditions of the employment contract, which gives the employee little choice but to resign. Many employees do feel that relocation is constructive dismissal. The general rule for establishing constructive dismissal is whether the employment contract has been fundamentally changed. Relocation may be a fundamental change to the employment contract as displayed in past court cases. The following are a few factors to be aware of when deciding to seek representation by an employment lawyer.

It is important to be aware of whether relocation is an implied term of the employment contract as terms of the employment contract are often not in writing. ‘Implied’ terms are certain provision that should be reasonably assumed even though not formally written. In the case of a relocation request from an employer, the request may be implied in a number of circumstances. This includes whether the employer has relocated other workers in the past, whether the business is international (has many locations internationally), and the size of the organization. When the business is international and the position is not a demotion, it is generally seen as an implied condition of the employment contract and therefore not grounds for constructive dismissal.

Other factors to be aware of are whether the relocation is temporary, whether there are changes to other fundamental terms of the employment contract (such as pay and responsibilities), whether relocation expenses are being covered by the employer and whether undue hardship will result from the relocation. Further, the relocation must be done in good faith (i.e. for a legitimate business purpose). If you feel that a relocation request would be constructive dismissal for the reasons mentioned or any other factors, it is important to seek legal consultation from an employment law expert.

Courts have ruled against employers when relocation was not a term included in writing within an employment contract, even when the business was international with offices in other countries. For employers, it advisable to included relocation clauses in initial written employment contracts if this is a reasonable expectation given the nature of the company’s operation. For any uncertainties, seek the advice of an employment lawyer.