THE QUESTION
In August, our company told us that our bonus entitlement would be significantly reduced by Sept. 1, 2021 so they would increase our annual salary because of the potential loss of bonus. My employer told me I would get a lump sum salary increase of almost $10,000. However, in early September, I received an e-mail saying that our company was changing its mind and revoked the base pay increase, reinstating the old bonus structure. Are they allowed to do this without notice?
THE FIRST ANSWER
Amiri Dear, lawyer, Hummingbird Lawyers LLP, Toronto
Much will depend on your employment contract, the terms of the agreement, its obligations and your entitlement to bonus pay and how it is calculated.
If the company changed the terms of your agreement orally and you agreed to it, then you would be entitled to the new terms of the oral agreement unless there is a clause in your contract which states otherwise. Many employment contracts contain clauses which state that the agreement cannot be amended unless in writing signed by both parties.
If there is no such clause in your contract, then the general rules of contract law would apply. In other words, where there is an offer and acceptance between the parties (a “meeting of the minds”) and some form of consideration, once the terms of the contract are not illegal or unconscionable, then a contract emerges. As a result, the written contract between you and your employer can be amended by an oral agreement which becomes a new contract, and the company cannot unilaterally back out of it. The company would, therefore, be bound to pay you the base pay increase as agreed upon rather than the bonus pay which was reflected in your earlier agreement.
If, however, your original contract could only be amended in writing, then only the terms of the original employment contract would be enforceable if no written amendment to the contract was executed, and the oral agreement would not be binding. As such, there would be no binding contract regarding the provision of increased salary rather than the bonus entitlement. Nevertheless, in such a situation, you would be entitled to your bonus pay as agreed upon.
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THE SECOND ANSWER
Carly Crawford, lawyer, HHBG Lawyers Employment Justice, Vancouver
Employers have the right to manage the workplace and make many decisions without employee consent. However, if an employer intends to substantially alter an essential term of an employee’s employment (e.g., changes/reduction of compensation, benefits, duties, etc.), the employer should provide adequate notice and seek employee consent before implementing the change. If an employee continues to work without objection, they will eventually have condoned the change.
An employee may also consent without adequate notice but insist that the change will not come into effect until adequate notice is given (which is equal to the amount of notice owed to the employee if terminated without cause). The employer may decide to terminate the employee, provide notice and reoffer employment on new terms.
If the employee rejects the change, they often leave their employment and claim “constructive dismissal” (which occurs when the employer indicates by its conduct that they have repudiated the employment agreement). If successful, an employee may be entitled to damages in lieu of reasonable notice.
In your situation, it does not appear that you have any recourse as your employer has ultimately complied with the terms of your employment. It seems your employer reversed its decision before implementation and there should not be any reduction in your compensation.
If you have had a reduction in compensation because of these changes, you should ask your employer for reimbursement. I also recommend that you contact an employment lawyer in your province before taking any steps that might affect your employment.
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Andrea Yu