The Legalist reminds employers to mind their manners and be clear when communicating pay cuts to employees.
Most of us who have managed employees will admit to at least one instance where they didn’t handle a difficult conversation very well. Most times, an apology or retraction will clear the air, but as a recent B.C. Supreme Court decision highlights, when the conversation is about cuts to an employee’s wages or benefits, such gaffes can have expensive consequences.
In Piron v. Dominion Masonry, a foreman with 19 years of service with the company was awarded 15 months severance after he quit when his employer told him he would no longer be entitled to bonus compensation. Further, because of a series of intemperate messages, the court decided the employee was not obligated to remain at his job to mitigate his damages while he looked for alternate work. As a result, the company was ordered to pay Piron $106,250, plus court costs.
James Piron was a foreman who worked on a series of construction projects for Dominion. He had always been paid an hourly wage, and regularly received bonuses from Dominion. In 2005 he was paid $20,000 in bonuses, and he was paid a $10,000 bonus in each of 2006 and 2007. In 2008 and 2009 Piron negotiated and was paid significant bonuses in the amount of $90,000 and $50,000 respectively as part of a single large project. After this project ended in 2010, Piron was assigned to a number of smaller projects and, due to economic constraints, the company unilaterally reduced the hourly wages of all of its foremen by approximately 10 per cent. Piron did not complain about this because he thought that he would be able to negotiate further bonuses for each project as he had done previously.
When Piron tried to raise the topic of his bonus compensation, John Friesen, one of the owners of Dominion, told Piron that the company could not afford them at present. Friesen also told Piron that he should be patient and wait for opportunities to purchase an interest in Dominion as some of the owners retired. Piron took this as a promise that he would have the opportunity to become a part owner of the company. However, nothing further came of the issue. In 2011 Piron approached Dominion with the idea of forming a division headed up by Piron, the profits of which would then be shared with Piron. Eric Sigurdson, another one of Dominion’s owners, rejected this offer out of hand.
Piron’s efforts to renew bonus discussions for his new and future projects was then met with a series of intemperate responses by both Friesen and Sigurdson, which included, for the first time, criticisms of Piron’s work and an ultimatum to drop any further requests for bonuses, or he could leave his position. Piron saw this ultimatum as him being constructively dismissed. Dominion disagreed and said that since bonuses had never been a guaranteed part of Piron’s compensation (except for the two years where bonuses had been specifically negotiated), their ultimatum did not result in a constructive dismissal.
The court decided that while bonuses may have initially been discretionary, Dominion had led Piron to believe that Dominion would pay him bonuses specific to each project he worked on, so the ultimatum to either quit or forget about bonuses was a material adverse change.
Dominion then argued that if Piron had been constructively dismissed, that he failed to mitigate his losses by staying with Dominion until he found another job. Again, the court sided with Piron by saying he was relieved of this obligation because Friesen and Sigurdson’s comments made it impossible for Piron to expect a reasonable working relationship going forward.
B.C. courts have said employers have a right to unilaterally reduce an employee’s compensation by up to 10 to 15 per cent, and that even if employees have been constructively dismissed, employees should stay and mitigate their losses. In any situation where an employer has to reduce employee compensation for economic reasons, such changes cannot be material and should be communicated so that employees understand the cuts are across the board. If Dominion had done a better job of communicating its rationale for cutting costs and had not made those intemperate remarks, it’s questionable whether Piron would have been awarded these damages.
This blog is written by Nicole Byres of Clark Wilson LLP and made available by BCBusiness to provide general information on employment law, and is not a substitute for competent legal advice from a lawyer licensed to practice in your jurisdiction. Neither the reading of this blog nor the sending of unsolicited comments or emails creates a lawyer-client relationship with the writer or Clark Wilson LLP.