The Legality of Taking Away Paid Breaks and Benefits

Unless one has been living under a rock, and perhaps even if one has, it would be hard to have missed the controversy surrounding the decision of one Tim Horton’s franchise to make certain changes to the terms of its employees’ employment. Because the internet needs the opinion of one more person, let’s have a look at what happened and the legality (not necessarily the morality) of same.

The Facts

As widely, and I mean widely, reported in the media, some time in early January 2018, Ron Joyce Jr. Enterprises Limited, a franchisee of Tim Hortons located in Cobourg, Ontario circulated a memorandum to its employees advising them as follows:

As one can plainly see, the employer made three changes to the terms of employment:

1. Breaks would no longer be paid;
2. Incentives such as paid days off were cancelled; and
3. Employees would now be required to contribute towards the costs of their employer-sponsored benefits.

The Legal Question

The legal question that arises from such facts is: Can an employer just do that? Distilling that question further, there are really four fundamental legal questions that need to be answered:

1. Can an employer make any unilateral, fundamental change to the terms of an employee’s employment without notice?
2. Can an employer really take away paid breaks?
3. Can an employer really take away benefits?
4. If the answer to those questions is no, what can an employee do about it?

The Right to Make Unilateral, Fundamental Change

Since the story broke about a week ago, I have been arguing that the employer had the legal right to make unilateral, fundamental changes to the terms of the employee’s employment. I based that position on the decisions of the Court of Appeal for Ontario in both Wronko v. Western Inventory Service Ltd., 2008 ONCA 327 and Kafka v. Allstate Insurance Company of Canada, 2012 ONSC 1035 (Div Ct).

In Wronko, former Chief Justice of Ontario Warren Winkler wrote the following:

[24] The basic premise underlying the individual contract of employment is that it continues as long as both parties agree. In common parlance, the employment of persons is "at will"; that is, either party has a right to terminate the employment relationship without cause. However, the use of the expressions "at will" and "a right to terminate" must not obscure the reality that the employer's right to terminate an employee without cause is a breach of contract that carries with it consequences for the employer, both under statute and at common law. The use of these expressions also must not obscure the reality that an employer's unilateral change to a fundamental term of an employment contract constitutes a repudiation of the contract. An act of repudiation carries consequences, which depend on how the employee responds to the repudiation.

…

[33] In [Hill v. Peter Gorman Ltd., 1957 CanLII 393 (ON CA)], Mackay J.A. identifies three options that are available to an employee when an employer attempts a unilateral amendment to a fundamental term of a contract of employment. They may be summarized as follows.

[34] First, the employee may accept the change in the terms of employment, either expressly or implicitly through apparent acquiescence, in which case the employment will continue under the altered terms.

[35] Second, the employee may reject the change and sue for damages if the employer persists in treating the relationship as subject to the varied term. This course of action would now be termed a "constructive dismissal", as discussed in [Farber v. Royal Trust Co., [1997] 1 S.C.R. 846], although this term was not in use when Hill was decided.

[36] Third, the employee may make it clear to the employer that he or she is rejecting the new term. The employer may respond to this rejection by terminating the employee with proper notice and offering re-employment on the new terms.

As a lawyer in private practice, I have frequently relied on Justice Winkler’s comments in paragraph 36, “the employer may respond to this rejection by terminating the employee with proper notice and offering re-employment on the new terms” to assist employers in varying fundamental terms of employment.

In order to be successful, however, the employer must ensure that it has provided “reasonable notice” of the change to the employee.

To this point must be added what the Divisional Court said in Kafka:

[45] … a fundamental change does not amount to a constructive dismissal where the employer provides the employee with reasonable notice of the change.

In short, in my opinion, so long as: (a) the employer provides reasonable notice of the unilateral, fundamental change to the employee before the change takes effect; and (b) the final result remains legal, employers may make unilateral, fundamental change to the terms of an employee’s employment.

Must Statutory Severance Be Provided?

When I posited this position on twitter, some rebuffed, taking the position that statutory severance would have to be paid:

The difference is severance pay. When an employer changes terms of an #employment agreement that's tantamount to discharge, an employer must pay full severance pay and then re-hire employee under new terms. Loss of health and dental benefits for #MinimumWage workers is too much.

— David Michaels (@davidmichaels) January 7, 2018

First of all, I have previously covered off the position that, “When an employer changes terms of an employment agreement that's tantamount to discharge” – I am not suggesting that employers be coy about the discharge, I strongly encourage the actual termination of the employment agreement, so as to avoid any ambiguity as to the situation.

Second, to the suggestion that “severance pay” must be provided, it is first important to recall that, not all employees are entitled to severance pay.

Next, even if the employee has been employed for 5 or more years and the employer’s payroll exceeds $2.5 million a year, we must consider what constitutes severance of employment. Section 63 of the Employment Standards Act, 2000 provides the answer to that question:

63 (1) An employer severs the employment of an employee if,

(a) the employer dismisses the employee or otherwise refuses or is unable to continue employing the employee;

(b) the employer constructively dismisses the employee and the employee resigns from his or her employment in response within a reasonable period;

(c) the employer lays the employee off for 35 weeks or more in any period of 52 consecutive weeks;

(d) the employer lays the employee off because of a permanent discontinuance of all of the employer’s business at an establishment; or

(e) the employer gives the employee notice of termination in accordance with section 57 or 58, the employee gives the employer written notice at least two weeks before resigning and the employee’s notice of resignation is to take effect during the statutory notice period.

At best, the only applicable circumstance would be a finding that a termination of an employment agreement constitutes the employer “dismissing” the employee. In my opinion, termination of an employment agreement does not necessarily constitute termination of the entire employment relationship. On this point, those interested would be prudent to consider the decision of the Court of Appeal for Ontario in Chapman v. GPM Investment Management, 2017 ONCA 227, about which I blogged in my post: Failure to Pay $300,000 Bonus a Breach of Contract Only and Not a Constructive Dismissal: ONCA.

Moreover, even if statutory severance must be paid, such payment constitutes a down payment against future obligations: ESA, ss 65(8), para 3. So it really doesn’t matter too much to the employer in any event.

Taking Stock of Where We’re At

So, at this point what we know is: employers legally can make unilateral, fundamental changes to the terms of their employee’s employment, so long as: (a) reasonable notice is provided; and (b) the result remains legal. There is some debate as to whether statutory severance must be paid to eligible employees, and while my answer is an unequivocal “no”, the good news for employers is that if the same is paid, then credit for such payment will be given at the time of actual dismissal.

Taking Away Paid Breaks

As I have stated several times, the end result after the changes are made must be legal. The same begs the question of whether taking away an employee’s paid break is legal.

Shocking as it may be to some, there is no statutory obligation under the Employment Standards Act, 2000 to provide employees with any form of paid break.

The statutory obligation to provide a break is found in sections 20 and 21:

20 (1) An employer shall give an employee an eating period of at least 30 minutes at intervals that will result in the employee working no more than five consecutive hours without an eating period.

(2) Subsection (1) does not apply if the employer and the employee agree, whether or not in writing, that the employee is to be given two eating periods that together total at least 30 minutes in each consecutive five-hour period. 2000, c. 41, s. 20 (2).

21 An employer is not required to pay an employee for an eating period in which work is not being performed unless his or her employment contract requires such payment.

I have written further about the subject of paid breaks in my post: Catching a Break.

In the case of the Cobourg franchise, I actually take some issue with any shift shorter than 5 hours and whether the employer can impose a 15-minute, unpaid break. For the most part, however, this change is legal.

Taking Away Paid Benefits

Similar to paid breaks, there is no statutory obligation for an employer to provide an employee with any form of health and dental benefits. Moreover, it is not illegal for an employer to require an employee to contribute towards the cost of same.

This change, while undeniably fundamental is clearly legal.

Remedy

Let us presume for a moment that the changes made to the employees’ employment were significant enough to justify the employee in treating the employment relationship as at an end. If the employer failed to provide reasonable notice of the change, what can the employee do?

First of all, it is important to recall what Justice Winkler said in Wronko:

[34] First, the employee may accept the change in the terms of employment, either expressly or implicitly through apparent acquiescence, in which case the employment will continue under the altered terms.

[35] Second, the employee may reject the change and sue for damages if the employer persists in treating the relationship as subject to the varied term. This course of action would now be termed a "constructive dismissal", as discussed in [Farber v. Royal Trust Co., [1997] 1 S.C.R. 846], although this term was not in use when Hill was decided.

[36] Third, the employee may make it clear to the employer that he or she is rejecting the new term. The employer may respond to this rejection by terminating the employee with proper notice and offering re-employment on the new terms.

Put more simply, the employee’s options are these:

1. Accept the change;
2. Reject the change, leave, and sue for “constructive dismissal”, plus perhaps extraordinary damages such as aggravated damages and/or punitive damages; or
3. Tell the employer that the employee is rejecting the change, insist on the original terms of employment, and see what the employer does.

If the employee chooses to balk at the situation, then the employee’s first step is to leave employment, taking the position that he or she has been “constructively dismissed.” Constructive dismissal is a complicated legal doctrine that is much beyond the scope of this post. Those interested in this concept would be prudent to consider my post: Supreme Court of Canada Confirms that There are Two Paths to Constructive Dismissal.

In short, a finding that the employee has been constructively dismissed entitles the employee, at a minimum, to payment in lieu of notice. For more employees employed in minimum wage, retail or food-service positions, that may not amount to very much.

What Can Be Done?

Some have suggested that the law should have been changed to prohibit employers from changing the terms of an employee’s employment. Respectfully stated, I am not sure how that can be accomplished so long as employers retain the right to terminate employment without cause.

On that point, if the Ontario government wanted to provide real protection to workers it would amend the Employment Standards Act, 2000 to make its termination provisions similar to those of the Canada Labour Code.

As the Supreme Court of Canada’s decision in Wilson v. Atomic Energy of Canada Ltd., [2016] 1 SCR 770, confirmed, most employees employed pursuant to the terms of the Canada Labour Code cannot have their employment terminated absent just cause.

Amending the ESA to mirror the Canada Labour Code would make it much harder for employers to not only terminate employment, but likely make fundamental changes to the terms of employment.

Although Bill 148 made several changes to the ESA, a full review of which you can find in my post Bill 148 and Changes to the Employment Standards Act, 2000, no changes were made to that law’s termination provisions.

Contact Me

If you are an employer and you are thinking about making changes to the terms and conditions of your employees' employment, such as by introducing new policies, better to speak with an experienced employment lawyer first.

If you are an employee and your employer has introduced new rules without providing notice of the change, or anything else, and you don't intend to abide by such rules, best to speak with a lawyer first.

Contact me. I can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321 x233.

Sean P. Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP. For 2.5 years he was in-house legal counsel providing employment law advice to one of Canada’s largest corporations. He has also been a part-time professor at Algonquin College teaching Trial Advocacy for Paralegals and Small Claims Court Practice.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

Photo Credit: (c) istock/MatthewSinger