Pandemic Pay Cuts Not Applicable to Dismissed Employee

Written by Lewis Waring, Paralegal, Student-at-law, Editor, First Reference

In Hunsley v Canadian Energy Services LP, 2020 ABQB 724 (CanLII) (“Hunsley”), the Alberta Court of Queen’s Bench (“ABQB”) found that a wrongfully dismissed employee was entitled to receive his regular pay and benefits during his notice period despite the reality that the employer had reduced compensation for employees during a pandemic pay cut. Although workers who stayed actively employed during the pandemic were subjected to the employer’s unilateral pay cut, this cut was recognized to be an act of constructive dismissal and thus did not factor into the employee’s notice entitlements.

The employer in Hunsley, Canadian Energy Services Inc., carried on business as a chemical manufacturer in the oil industry. The employee, Kendra Hunsley, began working for the employer as a drilling fluid programmer in 2012 and was eventually promoted to a management position until her dismissal on September 24, 2019. In her role as a manager, the employee’s compensation package included the following: base salary of $138,000.00, $8,280.00 in RRSP-matching contributions, parking benefits of $6,000.00, medical and dental benefits of $1,436.64, restricted share units unvested at termination of $21,360.87, vacation entitlements of $12,973.01, professional dues and courses of $5,039.02 and cell phone costs of $600.

Dynamic downturns in the oil industry led to pay cuts

At the time of her dismissal, the Alberta oil and gas industry was in challenging financial circumstances. Accordingly, the employer in Hunsley had inarguably suffered large reductions in business and revenue due to “changes in the energy industry, low oil and gas prices, and reduced levels of activity.” These pre-existing factors were only exacerbated in 2020, first by an international price war and then by the COVID-19 pandemic.

In Hunsley, the employer admitted that the employee had been wrongfully dismissed and was entitled to reasonable notice. The issue, in this case, was merely how much compensation the employer was required to provide as a result of its wrongful dismissal. As in many wrongful dismissal cases, the nature of the employee’s compensation package was disputed. In Hunsley, the main dispute related to a substantial pay cut which the employer had put into practice after the employee had been dismissed. This pay cut, which responded to a dramatic decrease of revenue for the employer, was forced onto a wide swathe of employees.

The pay cut instituted by the employer included both a salary reduction and removal of the RRSP contribution program in April 2020. These cuts, being instituted company-wide, would have technically been forced on the employee had she still been working at the time. The employer argued that this pay cut must be reflected in the employee’s award of damages as, had the employee been working during her notice period, she would have been subjected to the pay cut. Indeed, the employer in Hunsley claimed that all its employees had “accepted” the pay cuts. However, due to the fact that the employee, in this case, had been dismissed, it could not be said that she had consented to a pay cut.

Pay cut not part of the compensation package

In Hunsley, the ABQB applied the principle for the assessment of damages in the case of wrongful dismissal. That principle, namely, is that employees must be compensated for the amount they would have earned had they worked during the period of notice. Damages must include the loss sustained as a result of not receiving all elements of the compensation package, including wages, salary, bonuses, stock options, incentives and other benefits.

At first glance, Hunsley seems to suggest that the employee in this case, whose employer subjected its workforce to a mandatory pay cut, should therefore have been compensated in accordance with that pay cut. However, the reason that this pay cut was not considered in the calculation of damages in Hunsley derived from the likelihood that a dismissed employee would likely not have accepted a substantial pay cut. In Hunsley, the notion that a pay cut could be “accepted” was treated with skepticism. Instead of a product of negotiation, the pay cut was recognized as a product of coercion which was forced on employees. This act of forcing employees to accept a substantial pay cut likely amounted to a fundamental breach of the employer’s contracts with its workers. In other words, the pay cut likely resulted in a constructive dismissal.

As such, had the employee in Hunsley continued to work during his notice period, he would have eventually been subjected to a pay cut that would have resulted in his employer, through its conduct, dismissing him without cause. The result of such a dismissal without cause would be to entitle the worker to pay in lieu of notice and that pay would have been equivalent to an amount representing his entire compensation package, including full wages. Thus, whether the employer had instituted the pay cut or not, the result of the employee in Hunsley would have been equivalent. That is, had the employee in Hunsley been working during his notice period, he would have been entitled to the same amount of compensation whether he had continued to work at his normal pay rate or instead he had been subjected to a pay cut which would have left him constructively dismissed, entitling him to pay in lieu of notice at his normal pay rate.

Unilateral pay cuts not excused by COVID-19

In Hunsley, employers can see that unilateral pay cuts, even as a consequence of the COVID-19 pandemic, will not be factored into the calculation of compensation owed for pay in lieu of notice. This fact derives from the fact that pay cuts, without the real consent of an employee, are a refusal of an employer to fulfill its obligations under an employment contract. Forcing employees to accept less compensation for the performance of the same work is in fact a breach of contract and results in a constructive dismissal. In this sense, a unilateral pay cut, even in response to the COVID-19 pandemic, merely results in the severance of the employment relationship and, accordingly, notice entitlements for the employee. Employers can therefore take from Hunsley a lesson that unilateral pay cuts will not be enforced by the court system despite the economic realities of the COVID-19 pandemic, especially when for the purposes of calculating notice entitlements after a wrongful dismissal.

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