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Demotion in Constructive Dismissal Cases

Employers and employees alike should be wary when it comes to allegations of constructive dismissal in relation to job changes and/or potential demotions within a company. The test for constructive dismissal is whether an employer makes a fundamental and unilateral change to a contract of employment that is not specifically permitted by the contract. If the employer makes such a change, the employee is entitled to treat the contract of employment as repudiated and leave. In such circumstances, the employee is considered to have been constructively dismissed and is entitled to compensation for a reasonable notice period.

In Haddock v. Thrifty Foods (2003) Limited, 2011 BCSC 922, the court considered the issue of whether a demotion offer amounted to constructive dismissal. Haddock was a grocery store department manager who suffered from poor work performance due to alcohol dependency. The employee was warned that his job was in jeopardy and he acknowledged the expectations imposed on him going forward. When the employee failed to show up for work after a “rough weekend” of drinking, the employer offered to demote him to a non-managerial position or, if he wished, have him transferred to another store. When it appeared that the transfer option was no longer possible, the employer encouraged Haddock to apply for short term disability and he was eventually placed on STD, having been diagnosed with a depressive disorder. When the employee did not respond to the company’s offer to demote him, the employer terminated his employment.

The court determined that the demotion constituted constructive dismissal based on two main factors. First, the demotion had a financial cost which would have reduced the employee’s income by 16 to 20%. Second, the non-managerial duties were significantly diminished from his managerial role, which constituted a substantial change to the essential terms of the employment contract. The court concluded that demotion was not a proper response to poor performance.

The more recent case of Meyers v. Chevron Canada Limited, 2013 BCSC 420, however, suggests that the demotion of an employee does not necessarily lead to a finding of constructive dismissal. Meyers had been employed by Chevron Canada for almost 15 years when his position as Applications Development Team Lead was eliminated as part of the company's reorganization, and he was offered the position of Business Analyst. This new position offered the same salary, benefits and bonus and rewards programs as his former position, except Meyers would no longer directly supervise any employees or contractors or manage operations and project budgets. Meyers declined to accept the new position and alleged constructive dismissal against his employer. Chevron took the position that the new job offered was a lateral move and did not amount to constructive dismissal.

Unfortunately for Meyers, the court agreed with Chevron’s argument and dismissed Meyers's law suit. Although the court accepted that there was some diminishment of Meyers’ responsibilities within the company, the finding of diminishment alone was not enough to constitute a fundamental breach of the employment contract. The court noted that Meyer’s employment contract did not include any express or implied term that precluded Chevron from altering the scope of Meyers' job responsibilities. The court added that “the position being offered to [Meyers] was not a dramatic qualitative change in his duties”, and, thus, did not constitute a fundamental breach of the employment contract that supported constructive dismissal. The Meyers decision was recently cited as being “instructive” in Misener v. Royal Bank of Canada, [2015] O.J. No. 1169 by the Ontario Superior Court of Justice (where the employee failed to show a demotion by the employer or any fundamental change to his employment, despite his own perception of having been demoted).

In sum, employees should be cautious about alleging constructive dismissal, even if they believe that they have been demoted. Meanwhile, employers should be note that it is acceptable to reduce an employee’s job responsibilities (within limits) provided that: (1) there are no “dramatic qualitative changes” to the fundamental duties; and (2) the employee’s remuneration does not decrease.

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