In Ontario, there is no general rule forbidding an employer from proposing a pay cut. However, an employer that unilaterally imposes a pay cut on an employee puts itself at risk of a constructive dismissal claim. In addition, substantially altering an employee’s compensation without their consent may amount to a fundamental breach of contract and may entitle the employee to severance pay.
Can you be forced to take a pay cut?
An employer does not have the right to reduce or cut an employee’s wage. A unilateral change to compensation to which the employee does not consent may constitute a constructive dismissal as described below.
When is a pay cut legitimate?
An employer may propose a pay cut and an employee may accept. If the change is consented to by both parties, there is no dispute. However, a pay cut is never legitimate in the following circumstances:
- If the compensation is cut below the minimum wage;
- If the pay cut is discriminatory;
- If the employee has not been notified beforehand of the pay cut; or
- If the contract specifically stipulates that the wage rate cannot be lowered.
When is a pay cut considered constructive dismissal?
An employee’s salary, or wage, is a fundamental term of their employment. If an employee is forced to resign as a result of a unilateral change by the employer to a fundamental term of the employment contract, this is considered constructive dismissal.
A decrease in compensation, or an employee’s ability to earn commissions, will be considered valid grounds for constructive dismissal, so long as the change is not insignificant, and the change is a unilateral decision on the part of the employer. In Ontario, a pay cut of 20% or more is considered a constructive dismissal.
If you have experienced a pay cut, is it a breach of your employment contract? If it is a breach, is it a fundamental change? If yes, an employee may have the remedy of constructive dismissal to protect against the actions of their employer.
What to do if your employer has reduced your wages
The timing of the forced resignation and declaration of constructive dismissal is essential to a successful claim. If you agree to the pay cut or take steps to condone the change, your ability to make a successful claim for constructive dismissal could be impaired. The employer may successfully argue that you have accepted the change.
When your compensation is changed drastically, it is wise to consider rejecting the change, keeping good records, and getting legal advice.
How an employment lawyer can help if you have experienced a pay cut resulting in constructive dismissal
An employment lawyer will assess the conduct of your employer and determine if you have a viable claim for constructive dismissal. In some cases, an employment lawyer can help you remove yourself from employment where the terms are unjust, or the environment has been rendered toxic by the unilateral actions of your employer
Employment lawyers at Monkhouse Law are experienced in constructive dismissal matters. If your employer has reduced your salary, it is crucial that you contact Monkhouse Law as soon as possible.