Wiltse v. Seastar Chemicals ULS: Another recent example of why employees should consult a lawyer before accepting substantial changes to their compensation.
The case of Wiltse v. Seastar Chemicals ULC, 2020 BCSC 658, (“Wiltse”) illustrates how unilateral changes to employees’ contracts can lead to constructive dismissal – even where the employment contract suggests the employer can change the terms of the employment contract, and there’s value in some of the new terms proposed by the employer.
In Wiltse, the plaintiff was a production manager who had worked for the employer for 17 years.
The plaintiff participated in the employee non-discretionary bonus program to share a percentage of the company’s net profits to be paid out based on individual “salary bands”. In 2018, the company was sold to new owners who introduced new structural changes to the bonus program. The changes indicated the termination of the current profit-sharing program, and the transition over to a salary based fixed-percentage entitlement. In the meantime, a new cap was imposed on the entitlements.
In order for a new contract to be valid, however, there must be something of value flowing to each party which is typically referred to as “consideration” in contract law. Presumably then, as proposed consideration for these changes to the plaintiff’s contract, the company offered to the plaintiff an increase to his base salary.
The plaintiff immediately informed the company that he did not accept the unilateral changes to his employment contract and that he viewed the changes as constructive dismissal. The plaintiff told the employer that he would, however, continue working until he was able to secure a comparable position with similar remuneration and was open to further discussion regarding alternative arrangements.
Shortly thereafter, hours before the plaintiff was to leave for a three-week vacation, he received an email from the HR director asking the plaintiff whether he remained “fully committed to the success of [the employer]” or whether the employer should consider his letter refusing to accept the changes as “a resignation.” The plaintiff resigned shortly afterwards.
The court considered the defendant employer’s argument that it was within its right to make changes to the compensation structure under the original terms. It was true that the plaintiff’s original employment contract permitted revisions “to account for changes in the business.” The Court rejected the employer’s argument, however, for two reasons: (1) the changes brought by the new owners was properly viewed as a termination of the plan as a whole rather than a change to the plan itself; and (2) the changes were made with the intention of aligning the practices of the other subsidiaries – which did not show to have any connection to accounting for changes to the business itself.
After quantifying the impact of the proposed changes to the plaintiff’s compensation, the court found that there had been substantial breach of Mr. Wiltse’s employment contract.
The court also concluded that during the exchange between the plaintiff and the HR director, the plaintiff was not given any other alternatives but to acquiesce to the company’s demand.
The court found that the plaintiff was justified in concluding that the option of continuing the employment, other than accepting the new changes, was not available. Because of this, combined with the employee’s efforts for over a year to secure alternative employment, the court held that the plaintiff’s damages would not reflect deductions due to failure to mitigate.
Ultimately, the court awarded the plaintiff 16 months’ notice of base salary, benefits, and bonus entitlements under the original pay structure.
This decision implicates that the Court may find an employer has constructively dismissed an employee if it proceeds with unilateral changes to its bonus program that results in a significant reduction in pay for the employee.
For employers, the take-away from this decision is that they should the impact on an employee’s total compensation package when considering a change in their company’s bonus plan. Employers should seek legal advice prior to implementing such changes, and consider providing their employees with as much advance notice as possible of the intended changes.
For employees, it is recommended that they seek immediate legal advice when advised by their employer of a unilateral change to the employer’s bonus program that may have an impact on their total compensation package. Acting in a timely manner to object to the employer’s unilateral changes, as the plaintiff did in this case, can be vital to a successful claim for constructive dismissal. In addition, the plaintiff’s decision to resign from his position, but continue working as means of mitigating his loss while he searched for alternative employment was central to the Court’s determination that he had reasonably mitigated his losses.
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