Can an employer reduce an employee’s pay if they’re permanently working remotely?

By Brooklyn Neustaeter

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    TORONTO (CTV Network) — With many companies making remote work a permanent aspect of certain jobs, experts say employers cannot reduce a current employee’s salary without consent and face legal risks if they do.

However, employers can hire new, remote employees at lower wages, if they so desire.

Stephen Wolpert, a partner at Canadian employment law firm Whitten & Lublin, told CTVNews.ca an employer can change an employee’s pay if both parties agree to the reduction.

“If they’re both onside with the changes … there’s no real hurdle to that. The harder question is when an employer is sort of imposing it on an employee unilaterally, without the employee having agreed or without the employee having acknowledged that working remotely is a benefit to them,” Wolpert said in a telephone interview Thursday.

In those cases, Wolpert said, an employer can still reduce wages without an employee having agreed, but it comes with a “real risk” that the reduction will qualify as a constructive dismissal of that worker’s employment, which can entitle them to severance.

Constructive dismissal, Wolpert said, is when an employer makes a substantial change to the terms of an employee’s employment without consent, resulting in the employee having the option of treating their employment as having been terminated.

However, what the courts deem as constructive dismissal is “relative,” he said.

“If it’s a one-per-cent reduction in wages, that might not be seen as a constructive dismissal. If it’s a 20-per-cent reduction in wages, that probably would be,” Wolpert said. “The courts would look at all kinds of different things to decide how big a pay cut could be tolerated before it’s a constructive dismissal.”

While imposing a pay cut to existing employees poses a legal risk to employers, Wolpert said they do have the option to “red circle” someone’s salary.

“In other words, you don’t reduce it, but you make an internal decision that you’re not going to increase it for some period of time,” he said. “And that’s usually permissible, because most employees aren’t entitled to wage increases.’

Howard Levitt, an employment lawyer at Levitt LLP, said employers also have the option to hire new employees at lower rates if they are planning to have them work from home full-time.

“They can hire 10 employees at 10 different rates for the same jobs quite legally,” Levitt said in a telephone interview with CTVNews.ca on Thursday.

However, he said employers have to give current employees the option of returning to the office at full pay.

“If [companies] want to have a policy that people working at home will earn less, they can have that policy as long as they give the people who were previously at the higher salary the option of keeping their higher salary,” Levitt said

While working remotely eliminated the costs of commuting and running an office space, Christopher Achkar, principal and employment lawyer at Toronto-based firm Achkar Law, told CTVNews.ca that employers have to take into account the new costs facing an employee working from home, such as increased electricity bills, as well as personal phone and internet usage.

“These are things that now that employee will have to bear the cost on those, and the employer is getting a windfall essentially,” Achkar said in a telephone interview Thursday.

If an employer does try to reduce a current employee’s wages, Achkar said the employee should “make it clear” that they are refusing the change if a mutual agreement has not been met.

He added that if the employer comes back and says, “too bad, take it or leave it,” that is grounds for constructive dismissal and the worker should speak with an employment lawyer about compensation.

“What the employee should not do is not say anything about the decrease in pay and think that later on they can bring it up again,” Achkar said. “Once you accept a change in employment, like pay, then it will be hard to go back on it.”

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Sonja Puzic
sonja.puzic@bellmedia.ca