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.

Q&A: Independent Contractor Rights

| May 14th, 2015 | No Comments »

QUESTION #1

2 days after I submitted a written request for my 1st Quarter 2015 performance based compensation I was fired for no reason at all.  They told me “you are an independent contractor, so we don’t have to pay you”.  What are my rights in this situation?

ANSWER

You may have rights to severance in this situation, however, this will depend on whether you are truly an “independent contractor” from a legal perspective. Employees who are fired for no reason and without adequate notice are entitled to severance. By contrast,  independent contractors are not entitled to any severance (except what may be set out in a written contract). Merely because the company labelled you an “independent contractor” does not mean that the courts are bound by that label.  Even if you signed a written agreement that refers to you as an independent contractor, this is not determinative of your legal status.  The courts will examine not just what is simply written on paper or how the parties define each other, but how the parties actually carry out the working relationship.  In reality, very few contractors are truly independent contractors at law. Even if a company calls an individual an independent contract, an employment relationship has been nevertheless  found to exist in situations where the company exercises a high degree of direction or control over the individual’s work; the tools or equipment required to perform the work are provided by the company; most or all of the individual’s time is devoted to working for the company; and the individual is integrated into the company’s organizational structure. It is not necessary for all elements to be satisfied and this is not a complete list of examples, however, these are some of the main factors the courts will typically consider in clarifying the nature of your contractual relationship and your entitlements.

Separate from the above, you are entitled to be paid for outstanding earnings or performance-based compensation that was promised for work already performed, regardless of whether you are an employee or independent contractor. You should contact an employment law expert for advice about your legal status and your rights to a severance package.

Breaching unwritten terms in employment contracts can be constructive dismissal

| July 3rd, 2013 | No Comments »

In a recent case from British Columbia, the BC Court of Appeal confirmed the lower court’s judgment that failing to pay an employee their annual bonus can be constructive dismissal, even if the bonus was ostensibly discretionary and not a written term of the employment contract.

In Piron v. Dominion Masonry Ltd., the employee, Mr. Piron, was a 19-year veteran of the company. Initially, he was paid hourly, but after a few years his compensation was changed to a combination of hourly wages and a per-project bonus. These bonuses made up a significant portion of his annual income, typically being between $10,000 and $20,00, and in one year being as high as $90,000.

In his final year with the company, amid deteriorating economic conditions, the employer refused to pay Mr. Piron a bonus. After attempting to negotiate one, he was given an ultimatum: work for his hourly wage, or quit.

The employee took the position that this failure to pay him a bonus was a breach of the employment contract and that he had thus been constructively dismissed. His employer countered that the bonuses were purely discretionary, and did not form part of the employment contract.

 

Court’s decision on constructive dismissal

The Supreme Court of British Columbia (BCSC) sided with Mr. Piron, finding that the bonuses had become part of the employment contract. By unilaterally failing to pay the bonus to which Mr. Piron had become accustomed and was now entitled, the employer breached the employment contract and constructively dismissed Mr. Piron. The BCSC awarded him 15 months salary as damages in lieu of notice; however, the Court declined to award damages in respect of the unpaid bonuses.

On appeal, the BC Court of Appeal not only affirmed the constructive dismissal decision, but also increased the quantum of damages to reflect the unpaid bonuses, in light of the fact that Mr. Piron had become entitled to them under the employment contract.

 

Lessons on breaching unwritten terms in employment contracts

The lessons for employers and employees are clear: the consistent payment of bonuses can lead to their becoming part of the employment contract, even if they are not part of the written employment contract that the employee signed. More generally, the terms of an employment contract are not always limited to the written words of the contract; other terms can become part of the contract through the parties’ consistent behavior or demonstrated intentions. Unilaterally breaching the terms of an employment contract – including unwritten terms – will land the breaching party in hot water, regardless of external circumstances such as a declining economy. As this case has shown, breaching unwritten terms in employment contracts can be grounds for constructive dismissal.