By: Jordon Bond
As a result of the impact that the COVID-19 pandemic (the “Pandemic”) has had on Canadian businesses, many employees have experienced a salary reduction stemming from a change to their rate of pay or number of hours worked. This has left many employees asking the question, is it legal for my employer to cut my wage?
Employment law relating to wage cuts in Ontario are governed by both the province of Ontario, known as the statutory regime, and the courts, known as the common law regime. Note that employment laws in Canada may vary between provinces.
Wage Cuts in Ontario Pre-Pandemic
Under the statutory regime, the Employment Standards Act (the “ESA”) provides that an employer is considered to have terminated an employee if the employee is constructively dismissed[1]. A constructive dismissal may occur when an employer makes a significant change to a fundamental term of the employment contract without the employee’s consent[2]. One way an employer may constructively dismiss an employee is through a significant reduction to an employee’s pay, otherwise known as a wage cut.[3]
An employee must resign within a reasonable period in order for the wage reduction to be considered termination under the ESA.[4] Constructive dismissal is a complicated topic. For more information, employees can contact the Employment Standards Information Centre at 1-800-531-5551 or, if possible, contact an employment lawyer to obtain legal advice.
Essentially, a reduction of an employee’s hourly wage may result in wrongful dismissal. This may trigger certain remedies for employees including entitlement to a reasonable notice period, statutory termination pay and severance payments. For more information on these remedies, refer to our blog “Severance Pay, Common Law Notice, & Reasonable Notice”.
Wage Cuts in Ontario Post-Pandemic
In response to the Pandemic, the government of Ontario implemented regulation 228/20 (the “Regulation”), which is in force until July 3, 2021. The Regulation provides that a non-unionized employee is not considered to be constructively dismissed if their employer temporarily reduces an employee’s wage for reasons related to COVID-19.[5]
Effectively, the Regulation prevents employees whose wages have been cut from seeking statutory remedies like termination and severance pay. Note that the Regulation does not permit employers to reduce an employee’s hourly pay below the minimum wage.
The Regulation is silent on whether employees whose wages have been cut due to COVID-19 will be considered to have been constructively dismissed under the common law regime.
Key Takeaways for Employees
If a non-unionized employee’s salary is reduced by means of a wage cut for reasons related to the Pandemic, the Regulation prevents them from seeking statutory remedies like termination and severance pay.
Employees must note that the Regulation is only in force until July 3, 2021. After this date, the ESA rules surrounding constructive dismissal and layoffs will resume. This means that, as of July 4, 2021, a significant wage cut may be a constructive dismissal under the ESA, even if it was done for reasons related to COVID-19.[6] Employees should stay up to date on the Regulation to see if the Ontario government will extend its period of enforcement.
The Regulation is silent on how it will affect the common law regime relating to pay cuts. As a result, it is not clear whether an employee who experiences a reduction in their wage rate would have any recourse against employers under the common law regime.
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Disclaimer: The information provided in this response is for general informational purposes only and is not intended to be legal advice. The content provided does not create a legal client relationship, and nothing in this response should be considered as a substitute for professional legal advice. The information is based on general principles of law and may not reflect the most current legal developments or interpretations in your jurisdiction. Laws and regulations vary by jurisdiction, and the application and impact of laws can vary widely based on the specific facts and circumstances involved. You should consult with a qualified legal professional for advice regarding your specific situation.
[1] Employment Standards Act, 2000, S.O., C. 41 Section 56(1)(b).
[2] ‘Constructive Dismissal’, Ontario.ca, 2021 https://www.ontario.ca/document/your-guide-employment-standards-act-0/termination-employment#section-3.
[3] Ibid.
[4] Ibid.
[5] O Reg 228/20, s 6(1).
[6] ‘Reduction in Hours of Work or Wages’, Ontario.ca, 2021 https://www.ontario.ca/document/your-guide-employment-standards-act-0/covid-19-temporary-changes-esa-rules#section-4.