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Revising your employment contracts: A valuable strategy for business renewal, but look before you leap!

Richard B. Johnson

Co-Founder + Partner
January 29, 2021

If you are a business owner who has welcomed 2021 with optimism and excitement at the thought of leaving 2020 behind, then you are not alone. Many companies have started the new year with hopes and plans to renew their business. For many, these plans for renewal involve creating new employment agreements for staff with leaner compensation or severance terms, or other amendments necessary to the viability of your business.

However, before you make any changes to your employment agreements, it is important to assess what and how you intend to change them.  

A general legal principle is that an employer cannot unilaterally change a material or fundamental employment term without the employee’s consent or without providing appropriate notice – otherwise the employee might have a claim for constructive dismissal. 

Some common “material terms” that employers are looking to amend during the pandemic are titles and roles, amended compensation structures (particularly temporary reductions in salaries or interim halting of bonus or incentive plans) and, in some cases, very different work scheduling and task-sharing arrangements.

While it is prudent to be aware of the potential for a constructive dismissal and what may trigger this concept, change is still possible. 

So long as certain legal standards are met (such as ensuring you meet the minimum requirements of the BC Employment Standards Act), even material employment terms can be changed if: 

a)      The employee agrees to the changes (“consent”); or

b)      You provide appropriate notice to the employee that changes will be made to their employment terms.  What constitutes appropriate notice will depend on several factors such as whether there is a written employment agreement in place already.

It is best to seek legal advice prior to making any significant changes to employment agreements. However, our experience over the recent months show that the following considerations are helpful when introducing revised employment terms:

1)      Put yourself into the shoes of the employee and think about the questions you might have when you learn of the proposed changes – plan how to address those questions;

2)      Explain the reason(s) for the changes in clear, transparent and honest language – this will be valued and should greatly increase the likelihood of the employee being receptive to changes;

3)      Provide clarity about when any temporary changes will “go back to normal”, if they will;

4)      Consider making up for lost compensation if and when the financial state of the business improves (for example, if you are reducing salaries temporarily, consider a program where you pay back the difference over time when business improves); and

5)      Document any proposed changes and get employee consent in writing.

This article is intended to provide some general assistance when considering changes to your employment terms. Please contact us to discuss this in more detail – we’re here to help!