Written on behalf of Peter McSherry
Companies often physically move locations and employees are asked to transfer. This can be disruptive to employees, particularly if they have to move a long distance or uproot their families. What happens if an employee refuses to relocate when requested to do so? Can the employee claim constructive dismissal? Or, does their employer have cause to dismiss them?
Constructive Dismissal: A Quick Primer
The employment contract governs the legal relationship between an employer and an employee. Neither party has the right to unilaterally change the terms of that contract. Terms can include the duties/responsibilities of the employee, benefits/compensation, or location of the workplace.
An employer can only make changes to the fundamental terms of a contract if:
- They provide sufficient notice of the change, or fresh “consideration”; and
- Advise the employee that a refusal to accept the new terms could constitute just cause for dismissal.
The employee must have the opportunity to accept or reject the change being made by the employer.
Any unilateral changes to terms of employment without following the above process can constitute a constructive dismissal giving the employee grounds to sue.
Constructive dismissals commonly arise when employers are re-organising or downsizing. In those cases, employers often change terms of employment by reducing pay or other benefits, or by significantly adding to an employee’s duties. However, constructive dismissals can also occur where an employer transfers physical locations and asks employees to move without notice. In other situations, constructive dismissals can involve a demotion, or removal of duties and responsibilities.
The recent decision in Nufrio v. Allstate Insurance Company of Canada illustrates a situation where a refusal to accept a location change constituted just cause for dismissal rather than a constructive dismissal.
The employee in question had been employed as a Sales Agent with Allstate for more than 23 years. His original employment contract stated that Allstate:
- Had the sole discretion to assign the work location of sales agents.
- Could reassign clients to different sales agents.
- Could amend compensation, including commission rates.
The contract also stated that none of the sales agents had any property right in the clients they serviced or the income generated as a result.
Allstate eventually announced a change to its business model. The employee was informed that he would have a new title, and that his office would move to another suburb of Toronto. He was give one year’s notice of these changes.
The Employee’s Position
The employee did not accept the changes and attempted to negotiate with Allstate. He argued that the new business model fundamentally changed his compensation and how he operated. Under the original employment contract, he had run his own business, hired his own staff, and chose an office location (subject to Allstate’s approval). He had enjoyed this independence, and the certainty of a steady income. Under the new business model, much of his income would be replaced with discretionary bonuses. He also did not want to move locations. The employee believed that there would be fundamental changes to how he conducted business and he could not accept this.
The Employer’s Position
Allstate argued that the employee was given sufficient notice of the changes. His compensation would eventually change, but he was guaranteed the equivalent of his current compensation during the notice period. Also, while he would have to move offices from Etobicoke to Scarborough, the new location would be closer to his home. Further, he would no longer have to pay his own office expenses. In Allstate’s view, the employee had been given appropriate reasonable notice of the changes and had no right to refuse to comply with the new terms.
The Employer Had Just Cause to Terminate
The court found that the employee’s refusal to accept the new terms, including the requirement to relocate, constituted just cause for dismissal. An employer has the right to decide the terms of employment of its employees. The terms can be changed as long as there is appropriate notice given. Well-established caselaw provides that a fundamental change does not amount to a constructive dismissal where the employer provides the employee with reasonable notice of the change. Here, the employee did not have the right to insist on the employment terms that he wanted.
What does the Nufrio Case Mean for Employees?
Employees should be aware that employers may be able to change fundamental terms of their employment if they provide sufficient notice. Where an employer follows the correct process, an employee’s refusal to accept changes can result in just cause for dismissal. If done incorrectly, changes made by an employer can lead to a finding of constructive dismissal, and significant liability for the employer.
In addition, employees should be aware that there is caselaw that suggests that an employer’s relocation of offices does not always constitute a fundamental change to terms of employment. Courts have previously said:
“As I understand counsel for the respondent in this Court, he was of the view that the company could not relocate its business to the financial detriment of the respondent without creating a fundamental breach of its contract of employment. Consequently, the move itself was the fundamental breach. Counsel seemed to equate the terms of employment with the personal situation of the respondent, a lifelong resident of Ottawa, who had a family and a home with a mortgage. It has never been my understanding that an employee is entitled to a job for life in a place of his choosing. If he wishes to remain an employee of a given company, he must expect reasonable dislocations in that employment including the place where it is to be performed.” [emphasis added]
Decisions about dismissals – whether constructive or for just cause – are very fact specific and unique to the circumstances of each case.
To find out more about constructive dismissals or termination for cause, contact employment lawyer Peter McSherry online or at 519-821-5465.