Pay Cut Laws: Can My Employer Reduce My Wages in Ontario?

by | May 18, 2022 | Employment Law | 0 comments

The answer is yes; an employer can reduce your wages in Ontario, as they can in other Canadian provinces. Employers are allowed to make minor changes to your employment, including small reductions in your pay (with exceptions). They can also make significant changes to your job duties, wages or hours (among other changes) as long as they are made with your consent or providing sufficient advance notice.

That being said, however, a significant reduction in your wages (and other fundamental changes to your employment) can amount to a breach of the employment contract if your employer makes those changes unilaterally (without asking you first) or without providing enough warning of the impending change. If so,  that breach could amount to a constructive dismissal.

If your employer changes a core aspect of your employment, or asks you to consent to such a change, you are under no obligation to make a decision regarding the change before consulting employment lawyers in Ontario. How you handle a fundamental change to your employment terms can have a lasting impact on your job moving forward and shouldn’t be made without getting legal advice.

So what is the threshold that changes a minor pay cut into a significant one? What is constructive dismissal? What are your options if your employer reduces your wages to the degree that it changes a core term of the employment contract? Keep reading to learn what you need to know about pay cut laws in Ontario and your rights if your employer reduces your wages or otherwise changes a fundamental aspect of your job.

Disclaimer: The information in this guide and everywhere else on this website is for general information only and is not intended to provide legal advice of any kind. No lawyer-client relationship is created by accessing or otherwise using Ertl Lawyers’ website or by communicating with a lawyer or staff member. If you need legal advice, please contact our staff at Ertl Lawyers – a leading employment lawyer in Toronto. We’re more than happy to speak with you.

Small Pay Cuts vs Large Wage Reductions – Where is The Line in Canada?

The B.C. Supreme Court, in the case of Pavlis v HSBC Canada, reviewed several cases from various provinces, including Ontario, to help it decide what proportion of an employee’s remuneration (including bonuses and benefits) would constitute a fundamental breach of the employment contract.

In its decision, the Court stated that a pay cut of “9-10% of…average salary without more does not amount to a fundamental breach” while “14-17% can amount to a fundamental breach, but only in conjunction with some other significant unilateral change to the employment contract”, and that a reduction in total compensation from “20-46% (and presumably anything greater) by itself has been held to amount to a fundamental breach.”

These percentages are not concrete laws but are generally used as a guide to assess if a unilateral pay cut imposed by an employer is enough by itself for an employee to claim they were constructively dismissed.

A Woman holding a laptop in one hand gives a ten-dollar bill to a younger woman.

What is Constructive Dismissal & What Can you Do About it?

A constructive dismissal can occur when an employer unilaterally makes significant changes to a fundamental aspect of an employment contract that effectively ends it. An employee in this situation might feel that they have no choice but to quit as the new work conditions are vastly different than what they agreed to.

Constructive dismissal can also take place if an employer acts in a way that clearly indicates that they no longer wish to be bound by the terms of the employment contract. Example behaviours include abusive treatment of the employee, harassment of the employee or allowing abuse or harassment of the employee by others and taking no action to stop it.

Always speak to an employment lawyer if you feel that you’ve been constructively dismissed before quitting your job or at any time if you’re being harassed at work.

If you have been constructively dismissed, your options are to:

  • Accept the change.
  • Tell your employer that you do not accept the change and ask them to return to the original terms of the employment contract.
  • Make a claim for constructive dismissal but continue working until you find a new job to reduce your losses.
  • Tell your employer that you’ve been constructively dismissed by the new working conditions, quit and pursue legal action.

Another option is to try out the new employment situation first to see if it works for you. If you choose this option, you must notify your employer in writing that you are willing to try working under the new conditions for a short period of time before making a final decision but that you are not giving up your right to claim constructive dismissal. If you choose this option, it is crucial to understand that courts consider a short period of time to be a few days or weeks. Any longer, and a court would likely consider that you have accepted the new change to your employment.

If you decide to make a legal claim for constructive dismissal, you are seeking compensation in the form of the severance and termination pay that you are legally entitled to.  Under the Employment Standards Act, 2000 that amount is based on the pay you would have received over the duration of time your employer was obliged to give you as a notice period before your termination, as well as severance pay if you had been with the employer for over five years.

The Decision and its Impact on Your Job Moving forward

It’s a natural instinct to want to please your employer, especially if you love what you do and/or have great friendships in the workplace. Many employees are simply happy to be employed and want to be team players.

While those feelings are commendable, you need to be aware that if you accept the pay cut, you are effectively giving your employer permission to continue reducing your wages moving forward and that trying to claim constructive dismissal at a later date does not have a realistic chance of success.

On the other hand, if you feel that a pay cut and/or another significant breach of the employment contract is an obvious case of constructive dismissal, do not quit until you have been advised by an employment lawyer. They will ask important legal questions first to confirm whether you do have a strong case to claim constructive dismissal, then they will help you put a plan together on when you leave, how you leave and what you should say in your resignation letter to solidify your case.

These common situations illustrate the importance of getting legal advice before simply accepting unilateral actions made by an employer and making work-related decisions that can impact your life for years to come.

The same holds true if you are suffering from a physical or mental disability that has impaired your ability to perform key functions of your work. If you’ve applied for LTD benefits and your claim was denied, you should not simply accept the insurance company’s decision until you have spoken with a long-term disability lawyer in Toronto. Insurance companies routinely deny legitimate claims for LTD benefits unless they’ve been served with a lawsuit or have received a letter drafted by a long-term disability lawyer.

Employers and insurance companies are both in business to make as much money as they can. You need advice from a lawyer who is only looking out for your interests to make a truly informed decision.

A sign in a window tells customers they are closed because of COVID-19

Pay Cuts, Reduced Hours and Temporary Layoffs Due to COVID-19

In March of 2020, the federal and provincial governments were forced to implement several temporary measures to help soften the economic blow to workers and employers alike. The Ontario government responded in part by enacting Ontario Regulation 228/20: Infectious Disease Emergency Leave (IDEL). This regulation effectively suspended an employee’s right to claim constructive dismissal if an employer significantly reduced their wages or hours or laid them off longer than what would normally be allowed, as long as those changes were due to reasons related to COVID-19.

At the time of this writing, Ontario is in the midst of its reopening plan; however, the regulation remains in effect until July 30, 2022. If you have not yet been called back to work after a temporary layoff or your hours or pay are not back to pre-pandemic levels, speak with an employment lawyer to ensure that your rights weren’t violated when your employer implemented those measures. There are guidelines for eligibility and rules that an employer must follow if they want to exercise the measures provided by the IDEL.

To support employees during the pandemic, IDEL requires employers to provide them with up to three days of paid infectious disease emergency leave for reasons related to COVID‑19. This entitlement is in addition to employees’ rights to unpaid infectious disease emergency leave, which does not have a set maximum length. For workers covered by the Employment Standards Act (i.e., most non-federal and non-union employees), paid or unpaid IDEL leave is separate from other leaves provided under the ESA, including sick leave in Ontario.

Beyond Pay Cut Laws in Canada – Prioritizing Mental Health

While it’s certainly important to know your rights around sick leave, constructive dismissal and pay cut laws in Ontario and how they interact with COVID-19 measures as we begin the return to work, it is also crucial that we prioritize our mental health during this transition.

Many Canadians switched to survival mode as they dealt with financial difficulties, constant readjustments in work, home, and school life as new waves of infections came and went, and, let’s not forget, worrying about a global pandemic and the health of our loved ones.

Anxiety over commuting to work every day after two years at home and re-adjusting to working in the office again has been reported by many Canadian workers, as have reports of pandemic-related feelings of anxiety and depression.

‘Return anxiety’ is a potential workplace hazard employers are advised to address as they are required to take all reasonable precautions to protect the health and safety of their workers, including their mental health and well-being.

Moving forward, it’s vital that we recognize the warning signs of anxiety and depression, speak with a doctor immediately and seek out the supports available that can help us navigate mental health disability in Ontario if we’re feeling overwhelmed.

David Ertl Lawyer
About David Ertl
David Ertl, LL.B, has practiced employment and disability law for over 20 years. He is also a certified workplace investigator, former adjunct professor, and has written extensively in the areas of employment law, disability insurance, and tribunal practice and procedure.


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