In Ontario, an employer can ask you to accept a reduction in your wages, salary, hourly rate, commissions or bonuses. However, your employer generally cannot impose a significant pay cut without risking a claim for constructive dismissal.
If the reduction fundamentally changes your employment, you may be entitled to pursue severance pay instead of continuing to work under the new terms.
If your employer has already reduced your pay or has told you that a reduction is coming, it is important to understand your rights before agreeing to the change, signing a new contract or resigning.
Can an Employer Reduce Your Wages in Ontario?
Your employer can propose a reduction in your compensation, but you do not automatically have to accept it.
Your pay is one of the most important terms of your employment. If your employer makes a significant change to your compensation without your agreement, the change may amount to constructive dismissal.
- Your employer can ask you to accept a pay cut.
- You can agree to the change voluntarily.
- A significant reduction imposed without your agreement may amount to constructive dismissal.
- If your employment has been fundamentally changed, you may be entitled to severance pay.
What Counts as a Pay Reduction?
A pay reduction is not limited to a cut in your annual salary. Your overall compensation may include:
- Your hourly wage;
- Your annual salary;
- Commissions;
- Bonuses;
- Guaranteed overtime;
- Guaranteed working hours;
- Shift premiums;
- Vehicle or travel allowances;
- Pension contributions;
- Benefits; and
- Other regular compensation provided under your employment agreement.
A substantial reduction to any of these forms of compensation may create grounds for a constructive dismissal claim.
Can My Employer Force Me to Take a Pay Cut?
Generally, an employer cannot force an employee to accept a significant reduction in compensation without legal risk.
Your employer may propose new employment terms, including lower compensation. However, if you do not agree and the employer imposes a substantial reduction anyway, the employer may have fundamentally breached your employment contract.
In that situation, the law may treat you as having been dismissed, even though your employer has not formally ended your employment. This is known as constructive dismissal.
Employees do not necessarily have to choose between accepting substantially less pay and immediately resigning. Depending on the circumstances, other legal options may be available.
Learn more about constructive dismissal in Ontario.
When Is a Pay Cut Legal?
A pay reduction may be lawful when:
- The employer proposes the reduction and the employee voluntarily agrees;
- The employee accepts a new position with different duties and compensation;
- The employment contract permits the change;
- The employer provides proper notice of the change; and
- The reduction complies with Ontario’s minimum employment standards.
However, an employer cannot:
- Reduce an employee’s wages below the applicable minimum wage;
- Reduce pay for discriminatory reasons;
- Make unauthorized deductions from wages;
- Retroactively reduce the wage rate for work that has already been performed; or
- Ignore contractual commitments concerning salary, commissions, bonuses or other compensation.
Ontario’s Employment Standards Act rules concerning the payment of wages establish minimum requirements for how and when wages must be paid. Whether a pay reduction amounts to constructive dismissal will also depend on the employment contract and the common law.
When Does a Pay Cut Become Constructive Dismissal?
Constructive dismissal may occur when an employer makes a significant unilateral change to a fundamental term of employment.
Compensation is generally considered a fundamental term of the employment relationship. A substantial reduction in salary, hourly wages, commissions, bonuses or other regular compensation may therefore amount to constructive dismissal.
There is no fixed percentage that automatically determines whether a pay cut is constructive dismissal. Reductions of approximately 20% or more are often considered significant, but every case depends on its specific facts.
Relevant factors may include:
- The percentage of the reduction;
- The employee’s total loss of compensation;
- Whether the reduction is temporary or permanent;
- Whether commissions or bonuses are affected;
- Whether the employee’s hours have also been reduced;
- Whether the employee has been demoted;
- Whether duties or responsibilities have changed;
- Whether the employment contract permits the change; and
- Whether the employee agreed to or accepted the reduction.
Even a reduction of less than 20% may support a constructive dismissal claim when it is combined with other substantial changes to the employee’s position.
Examples of Pay Reductions That May Be Improper
You should consider obtaining legal advice if your employer:
- Reduces your hourly wage without your agreement;
- Significantly cuts your annual salary;
- Changes your commission formula so that you earn substantially less;
- Eliminates a guaranteed or regularly paid bonus;
- Removes a vehicle allowance or another important benefit;
- Reduces your hours while expecting you to complete the same workload;
- Demotes you and substantially reduces your pay;
- Introduces a temporary pay cut without a clear end date;
- Reduces your pay because you took a disability, pregnancy or parental leave;
- Cuts your pay after you raised a workplace complaint; or
- Changes your compensation after you have already performed the work.
The fact that a pay reduction applies to many employees does not necessarily eliminate your individual employment rights.
Can My Employer Reduce My Pay Without Notice?
An employer generally cannot retroactively reduce the wage rate for work that you have already completed.
For example, if you worked at an agreed hourly rate, your employer generally cannot decide after those hours were worked that you will be paid at a lower rate.
Changes to future compensation are different. An employer may propose a prospective change, but a significant reduction imposed without your agreement may still amount to constructive dismissal.
Whether advance notice makes a reduction lawful will depend on the amount of notice provided, the wording of your employment contract and the overall effect of the change.
Can My Employer Reduce My Wages During Working Notice?
When an employer gives working notice of termination, the employee is generally entitled to continue receiving their regular wages and other compensation throughout the notice period.
An employer should not reduce an employee’s salary, hourly rate, commissions, benefits or other important employment terms during the statutory notice period.
A reduction in compensation during working notice may create additional legal issues. Learn more about termination without cause and wrongful dismissal in Ontario.
Can a Temporary Pay Cut Be Constructive Dismissal?
Some employers describe a wage reduction as temporary because of financial difficulties, restructuring or changing business conditions.
Calling a pay cut temporary does not automatically make it lawful. A temporary reduction may still amount to constructive dismissal depending on:
- The size of the reduction;
- How long the reduction is expected to last;
- Whether there is a definite end date;
- Whether the employee agreed to the reduction;
- Whether the employer has promised to repay the lost wages; and
- Whether other employment terms have also changed.
A temporary reduction that continues indefinitely may be particularly concerning.
Can My Employer Reduce My Commission?
A significant change to an employee’s commission plan may amount to a reduction in compensation and, in some cases, constructive dismissal.
Examples may include:
- Reducing the commission percentage;
- Changing how sales are credited;
- Removing established clients or accounts;
- Changing the employee’s sales territory;
- Increasing targets in a way that substantially reduces earnings; or
- Changing when commissions are considered earned.
The employment agreement and commission plan should be reviewed carefully before the employee accepts a new compensation structure.
Can My Employer Reduce My Bonus?
Whether an employer can reduce or remove a bonus depends on the terms of the employment contract and the nature of the bonus.
A genuinely discretionary bonus may be treated differently from a bonus that is regularly paid, guaranteed or based on an established formula.
If a bonus forms a significant and regular part of your total compensation, removing it may amount to a substantial change to your employment.
Can My Employer Demote Me and Cut My Pay?
A demotion combined with a substantial pay reduction may amount to constructive dismissal.
The courts may consider:
- The amount of the pay reduction;
- The loss of status or seniority;
- The change in duties and responsibilities;
- The reason for the demotion;
- Whether the employment contract permits the change; and
- Whether the employee agreed to the new position.
An employee should obtain advice before accepting a demotion or resigning in response to one.
Be Careful Not to Accidentally Accept a Pay Cut
If your employer reduces your compensation and you continue working without objecting, the employer may eventually argue that you accepted the new terms.
This does not mean you should resign immediately. Resigning too quickly without first obtaining advice can also affect your ability to pursue a constructive dismissal claim.
If you do not accept the reduction, consider clearly communicating your objection in writing and obtaining legal advice promptly.
What Should I Do If My Employer Cuts My Pay?
If your employer reduces your wages or announces an upcoming reduction, consider taking the following steps:
- Ask your employer to provide the proposed change and the reason for it in writing.
- Save copies of your employment contract, pay stubs, commission plans, bonus documents and relevant emails.
- Calculate how much the change will reduce your total compensation.
- Do not immediately sign a new employment agreement or compensation plan.
- Do not resign before understanding your legal options.
- If you do not agree with the change, consider objecting in writing.
- Contact an Ontario employment lawyer as soon as possible.
The timing of your response can be important. Waiting too long to object may allow the employer to argue that you accepted the reduction.
Should I Quit If My Employer Cuts My Pay?
Not necessarily.
Employees sometimes believe they must either accept a pay cut or quit immediately. However, resigning before receiving legal advice may make a constructive dismissal claim more difficult.
If the reduction is significant, an employment lawyer can assess whether you should continue working under protest, attempt to resolve the issue with your employer or pursue a constructive dismissal claim.
Could I Receive Severance Instead of Accepting a Pay Cut?
If a wage reduction amounts to constructive dismissal, you may be entitled to pursue compensation as though your employment had been terminated without cause.
Depending on your circumstances, severance compensation may include:
- Salary or hourly wages;
- Commissions;
- Bonuses;
- Benefits;
- Pension contributions;
- Vehicle allowances; and
- Other compensation you would have received during the applicable notice period.
The amount you may be owed can depend on factors such as your age, length of service, position, compensation and the availability of comparable employment.
Learn more about severance pay in Ontario or try Monkhouse Law’s Ontario Severance Pay Calculator.
Frequently Asked Questions About Pay Cuts in Ontario
Can my employer reduce my hourly wage?
An employer can propose a lower hourly rate, but a significant reduction imposed without your agreement may amount to constructive dismissal. An employer also cannot retroactively reduce the rate for hours you have already worked.
Can my employer reduce my salary but keep my job the same?
A substantial salary reduction may amount to constructive dismissal even when your duties and position remain unchanged. Your employer cannot necessarily avoid legal consequences simply by allowing you to remain employed at a lower salary.
Can my employer reduce my hours instead of my wage?
A significant reduction in working hours may amount to constructive dismissal if it substantially reduces your income or fundamentally changes your employment.
Is a 10% pay cut constructive dismissal?
There is no automatic rule. A 10% reduction may or may not amount to constructive dismissal depending on the employee’s contract, total compensation and any other changes imposed by the employer.
Is a 20% pay cut constructive dismissal?
A reduction of approximately 20% or more is often considered substantial and may support a constructive dismissal claim. However, every case must be assessed individually.
Can my employer reduce my pay because business is slow?
Financial difficulty does not automatically give an employer the right to impose a significant wage reduction. The employer may propose a reduction, but an employee’s consent and contractual rights remain important.
Can my employer reduce my pay for poor performance?
An employer cannot necessarily impose a substantial pay cut as punishment for alleged poor performance. Depending on the circumstances, the reduction may amount to constructive dismissal or raise other employment law concerns.
Can my employer fire me if I refuse a pay cut?
An employer may choose to terminate employment rather than continue under the existing terms. However, unless there is legal cause for dismissal, the employee may be entitled to notice of termination, termination pay and potentially additional severance compensation.
Should I accept a pay cut?
Before accepting a significant reduction, consider obtaining legal advice. Signing an agreement or continuing to work without objecting may make it more difficult to later argue that you did not accept the change.
Speak With an Employment Lawyer
If your employer has reduced your wages, salary, commissions, bonuses, hours or other compensation without your agreement, you may have important legal rights.
The employment lawyers at Monkhouse Law represent employees in constructive dismissal, wrongful dismissal and severance matters throughout Ontario. A lawyer can review your employment contract, assess the financial effect of the pay reduction and explain whether you may be entitled to compensation.
Contact Monkhouse Law to request a free 30-minute phone consultation.