One of the most difficult situations that any human resources professional or any employer can be faced with is when an organization requires and has to change an employee's terms and conditions of employment. Two examples of typical changes are: changing the person's compensation structure or by assigning them to a different position and responsibilities. Invariably, the situation will be stressful for the human resources professional who has to communicate these changes and the employees themselves will often feel threatened by or be hostile to the changes being made to their employment. To make matters worse, sometimes matters 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.
Past experience has shown that it can be difficult to assess whether a constructive dismissal has occurred of whether an employee is required to accept the changes being imposed. A recent 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 the changes before they are forced to agree to them or take the position that they were constructively dismissed.
In Beltron et al. v. Liberty Insurance Company of Canada (August 17, 2004) an action was brought on behalf of a number of commissioned sales representatives ("agents") selling life insurance for London Life and property of casualty insurance for Prudential of America General Insurance Co ("PAGIC"). Their PAGIC agent agreements stated that they were independent contractors and that PAGIC could change the schedule of their commissions by providing agents with 90 days' notice in advance. Liberty Mutual Insurance Company purchased PAGIC 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 Liberty required them to sign. The new agreements changed the agent’s commission structure and established "minimum production levels" for sales. The new agreement was schedules to take effect on April 7, 1999. As a result, the agents 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 thus constituted just cause. The Trial judge agreed and dismissed the agents wrongful dismissal claims. However on appeal, the Ontario Court of Appeal overturned the decision and in keeping with the trend in employment decisions ever since the mid-1990s was particularly concerned with the vulnerability of employees faced with changes to their employment relationship.
Consequently, the Court of Appeal held that the agents were employees of Liberty, that Liberty was obliged to provide the agents with reasonable notice despite their refusal to sign the new agency agreement and 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 of Appeal stated that 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. The Court of Appeal then 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] right to change the compensation schedule, and that their failure to do so did not constitute a predication of their agreement with [Liberty]." (emphasis added)
Essentially, what the Court of Appeal is saying is that an employer should provide a "try out" period where the employee can assess the changes prior to be required to accept them. Given the decision of the Court Appeal, it would be good practice for organizations that are thinking of changing an employee’s position 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 the 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 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 moving to a commission structure while at the same time being guaranteed the greater of their old salary of what the new commission income would be under the new structure.
Steve Levitt practices employment law with Nelligan O'Brien Payne LLP LLP, a full service law firm, in Ottawa and can be reached at 613-231-8283 or firstname.lastname@example.org
[This article was originally published in the January 2005, Volume 3, Issue 3 of The OHRPA Magazine.]