Layoff becomes a default answer for companies to address economic recession or tough financial times. This means cost cuts and temporary lay-off while the salary of the remaining employees stay relatively high. With Western Canada, specifically Calgary, Alberta feeling the effects of the change in the oil and gas market, many companies have been faced with layoffs. Reduction in salary can be seen as an alternative to layoffs as the employers may be able to retain their best talent in bad times while they wait for the market to change once again in their favour.

While companies are happy to raise prices and employees are happy to receive a hike in pay; pay reduction can be refused by a lot of employees, which isn’t a surprising factor and is a short sighted approach.

In employment law, constructive dismissal occurs when an employee resigns as a result of the employer changing a fundamental term of its employment contract with an employee without the employee’s consent. This often results in the employee resigning. Since the resignation was not truly voluntary, it is in effect deemed to be a termination. Companies need to follow certain recommendations when structuring a pay reduction to avoid potential constructive dismissal claims:

  • A company-wide pay reduction will help lower employee’s anxiety or feeling as if it is due to low performance;
  • Employees should be appreciated and comforted with the fact that the company wants to keep their employees despite the economic condition
  • Providing prior notice based on tenure in accordance with provincial employment standards (1-8 weeks)

Employers and employees being flexible with restructuring during economic slowdown can emerge to be the most successful to both parties during the current economic times.

Krithikha Krishnan / Human Resources Assistant / PEO Canada