One of the most difficult situations that any employer can be faced with is when an organization is required to change an employe's terms and conditions of employment. Typical changes include changing an employee's compensation structure or assigning an employee to a different position and responsibilities. Invariably, the situation will be stressful for the employer or HR person who has to communicate those changes, while the employees themselves will often feel threatened by or be hostile to the changes being made to their employment. To make matters worse, sometimes a situation can escalate to the point where an employee will claim that changes being imposed have resulted in them being constructively dismissed, the most nebulous of all employment situations.
It can be difficult to assess whether a constructive dismissal has occurred and whether an employee is required to accept the changes being imposed. A recent Ontario Court of Appeal decision adds a new wrinkle to the situation by suggesting that employers should provide a "try-out" period to allow employees to assess unilateral changes before they are forced to agree to them or take the difficult position that they have been constructively dismissed.
In Belton v. Liberty Insurance Company of Canada an action was brought on behalf of a number of commissioned sales representatives (";agents") selling life insurance for London Life and property and casualty insurance for Prudential of America General Insurance Co. ("PAGIC"). Their agency agreements stated that they were independent contractors and that PAGIC could change the schedule of their commissions by providing the agents with 90 days’ notice. PAGIC was purchased in 1997 and changed its name to the Liberty Insurance Company of Canada ("Liberty").
On January 4, 1999 Liberty attempted to exercise the 90 days' notice clause and presented its agents with a new agency agreement that it required them to sign. The new agreements altered the agents' commission structure and established "minimum production levels" for sales. The new agreement was scheduled to take effect on April 7, 1999. The agents refused to sign the new agreements, and therefore Liberty terminated them on April 7, 1999. The agents then started a lawsuit against Liberty for wrongful dismissal.
At trial, Liberty took the position that it was entitled to change the agents' commission structure by virtue of the 90 days' notice clause and that the refusal to sign the new agency agreements constituted just cause. The trial judge agreed and dismissed the agents' wrongful dismissal claims. On appeal, the court overturned the decision and in keeping with the trend in employment decisions since the mid-1990s, was particularly concerned with the vulnerability of employees when faced with changes to their employment relationship. Consequently, the appeal court held that the agents were in fact employees of Liberty, that Liberty was obliged to provide the agents with reasonable notice despite their refusal to sign thenew agency agreement. The court further stated that the agents were under no obligation to accept the new agency agreement, and their refusal could not be considered just cause.
Importantly, the court emphasized the vulnerability of employees who believe they may have been constructively dismissed and the difficulty of making the life-altering decisions they face had to be recognized when applying the law. The court went on to say:
"In this context, it is understandable that such employees may wish to try to adjust to the new terms and conditions without affirming the employer's right to make these changes and before taking the radical step of advancing a constructive dismissal claim. Allowing employees reasonable time to assess the new terms before they are forced to take an irrevocable legal position not only addresses their vulnerability, but also promotes stability and harmonious relations in the workplace. For these reasons, I am of the view that the appellants had no obligation to acknowledge [Liberty's] right to change the compensation schedule, and that their failure to do so did not constitute a repudiation of their agreement with [Liberty]." (emphasis added by author)
Essentially, what the court is saying is that an employer should provide a "try-out" period where the employee can assess the changes prior to being required to accept them. Given the decision of the court, it would be good practice for organizations that are thinking of changing an employee's position, duties or compensation structure to provide the employee with a reasonable period where they can "try-out" those changes first and assess their true impact. Conducting such a "try-out" period when implementing changes, will not only possibly diffuse some of tension in the workplace associated with making changes but may possibly avoid a future constructive dismissal claim, since employees after having tried out the changes might not be as inclined to reject them once they have actually experienced the new reality.
The question is how long should the "try-out" period be? While there is no jurisprudence on point, the likely answer is the period would have to be sufficiently long to allow the employee a real opportunity to assess the extent and impact of the proposed changes being made. For example, if the contemplated change was to move an employee from a salaried position to a commission based remuneration structure, the employee should be provided an opportunity to work under the commission structure for a period of time where he or she can reasonably assess the impact of the new structure.
Steve Levitt practises employment law with Nelligan O'Brien Payne LLP LLP in Ottawa.
[This article is reprinted with permission and first appeared in the March 2005 issue of The Lawyers Weekly.]
Reasons: Belton v. Liberty Insurance Co. of Canada, [2004] O.J. No. 3358.
