Kosteckyj v Paramount Resources Ltd, 2022 ABCA 230 is an important Alberta Court of Appeal (ABCA) decision relating to constructive dismissal, as it assesses the timing of an employee’s objection to an employer’s unilateral reduction of their compensation.

The employer in this case appealed the lower court’s judgment awarding the employee $107,247 in damages for constructive dismissal.  The ABCA allowed the appeal and reduced the judgment to $97,190.  At the ABCA, two decisions were rendered.  In his decision, Justice Wakeling found it is reasonable for “a professional engineer and a healthy, knowledgeable and informed person” to have no more than 10 days from the day an employer unilaterally introduces a compensation reduction to communicate to the employer their lack of consent to the reduction, and that it is reasonable for an employee that lacks those attributes to have no more than 15 days.

Although Justice Pentelechuk and Justice Ho concurred with Justice Wakeling’s result, they preferred to avoid stating a specific time within which an employee would have to decide whether to accept the reduction.  They did find, however, that in the unique circumstances, including the employee’s total years of service, 25 days was enough time for her to decide if she would accept the changes to her contract, or leave employment and claim constructive dismissal.

Background

The employee began to work for her employer’s predecessor in 2013.  The predecessor was acquired by the employer in 2017 and the employee continued employment.  

In the context of the COVID-19 pandemic, on March 27, 2020, the employer announced a “cost reduction program” (i.e., for all salaries and benefits) effective April 1, 2020. This involved a 10% salary reduction, the suspension of 6% Registered Retirement Savings Plan contributions, a delay to or cancellation of bonus, and elimination of seminars and training.

On April 22, 2020, the employee was terminated without cause to further decrease costs, and was provided five weeks’ salary as statutory termination pay.

In July 2020, the employee sued for wrongful dismissal, seeking damages equal to the salary and benefits she would have received had her employment lasted another 12 months based on her compensation package “[a]t the time of dismissal” (i.e., salary and benefits as they were before the cost reduction program).

On November 5, 2020, the employee applied for a summary trial.  At that time, she again claimed the employer terminated her employment without notice on April 22, 2020.

In her trial brief filed on January 22, 2021, the employee alleged constructive dismissal on April 1, 2020.

The employer agreed the employee was entitled to damages in lieu of reasonable notice.  It argued, however, that damages should be based on compensation as of April 22, 2020, the actual date of termination.  In taking this position, the employer noted the employee did not assert constructive dismissal until after she was actually dismissed; could not disregard her actual termination ex post facto and suggest that she was constructively dismissed and then argue her employment was not ‘terminated’; and never asserted that she was constructively dismissed, pled that she had been, or alleged that she considered herself to be constructively dismissed in her Affidavit filed in support of her Application for Summary Trial.

Lower Court Decision

The lower court concluded that the employee proved a constructive dismissal on April 1, 2020 and held that she was entitled to nine months’ termination notice from that date, i.e., $107,247 in damages based on her compensation before the cost reduction program. 

ABCA Decision

The employer appealed the lower court’s judgment but did not contest that nine months was reasonable notice.

Justice Wakeling’s Decision

Constructive Dismissal

Justice Wakeling confirmed there are two scenarios in which the law treats the conduct of an employer as constructive dismissal.  To establish constructive dismissal in the applicable scenario, an employee must prove, from an objective perspective, that their employer failed to substantially discharge an essential obligation in the employment contract, and that the employee declined to accept the new terms of employment within a reasonable time period.  (In the second (inapplicable) scenario, an employer constructively dismisses an employee if it treats an employee disrespectfully and makes the relationship intolerable.)

Justice Wakeling determined that the lower court correctly decided that the employee proved objectively that the changes introduced to her contract on April 1, 2020, constituted substantial changes to essential obligations, and that such changes were detrimental.  

Justice Wakeling found, however, that the lower court erred in finding that the employee did not consent to such changes. He noted that the employee never stated that she refused to accept the changes introduced on April 1, 2020, or had not made up her mind before April 22, 2020, the actual termination date. Justice Wakeling concluded that the fact that the employee worked for three weeks doing the same tasks from the same office was clear evidence that she accepted her reduced compensation.

Jutice Wakeling set what he referred to as “a bright line test” with a short timeframe:

I am satisfied that no more than ten business days after April 1, 2020 constituted a reasonable period of time for [the employee], a professional engineer and a healthy, knowledgeable and informed person, to collect the information she needed to assess the state of the employment market for professional engineers in Calgary and elsewhere, to consult legal counsel to ascertain her rights and obligations as an employee and to make an informed and prudent decision on the merits of rejecting or accepting the new employment terms. In drawing this line, I am not taking into account the employee’s length of service…Both a short-service and long-service employee, assuming other important attributes are comparable, will be in the same position to assess the merits of accepting or rejecting the new compensation level. [Emphasis added]

Justice Wakeling noted, however, that an employee “without the attributes of [the employee]” may need more time to collect the information required “to make a prudent and informed decision.” He stated, however, that “it would be a rare case that a reasonable period would exceed fifteen business days.”

Date of Employee’s Wrongful Dismissal

Justice Wakeling found further that because the employer admitted it had terminated employment on April 22, 2020 and failed to pay the amount she would have earned had it given her reasonable notice of termination, the employee was entitled to judgment for wrongful dismissal as of April 22.  

Compensation Level to Determine Employee’s Nine-Month Termination Notice 

Justice Wakeling decided that since neither party appealed the lower court’s determination that the employer was obligated to provide nine months’ notice of her termination, he would calculate her damages on that basis. He awarded the employee $97,190 (nine months’ salary and benefits from April 22, 2020 to January 22, 2021).

Justice Pentelechuk’s and Justice Ho’s Decision

Justice Pentelechuk and Justice Ho concurred with Justice Wakeling’s result, noting that given the labour market during the pandemic and the decimation of the oil and gas industry, the fact that the employee kept working for 25 days “strongly suggests she acquiesced to the realities of her employment situation.”

Justice Pentelechuk and Justice Ho noted the short time frame Justice Wakeling established for an employee to decide whether to accept or reject the new terms of employment, but they expressed a preference to avoid stating a specific time period, especially since no argument or submissions were made on the subject.  Justice Pentelechuk and Justice Ho did find, however, that in the unique circumstances, including the employee’s total years of service, 25 days was enough time for her to decide if she would accept the changes to her contract, or leave her employment and claim constructive dismissal.

Bottom Line for Employers

The ABCA’s decision in Paramount Resources indicates that an employee that does not accept a unilateral reduction in compensation should say so quickly and that an employee’s failure to do so may cause a constructive dismissal claim to fail.   

Although the timeframe within which an employee must reasonably express their lack of consent in Justice Wakeling’s “bright line test” was resisted by Justice Pentelechuk and Justice Ho, Paramount Resources indicates that, at a minimum, an employee who continues to perform their duties for three to four weeks without expressing their lack of consent to reduced compensation may be viewed as having accepted it.