Constructive Dismissal Strikes Again! Kosteckyj A Win for Employees (Mostly)

By: Joel Fairbrother

Published: 7 April 2021

Disgruntled woman receiving improper pay.

The new Alberta Court of Queen’s Bench case of Kosteckyj v Paramount Resources Ltd, 2021 ABQB 225 (Sidnell, J) makes some important determinations for constructive dismissal and employment law generally.

Kosteckyj involves an employee who underwent a compensation change of between “16.6% and 20%” due to a company cost-savings measure implemented in March and April of 2020.  The unique facts in this case were that the plaintiff employee did not resign, but instead, had her employment expressly terminated by the employer about 25 days after the compensation cut.

This case deals with the issue of “pre-cut / post-cut” constructive dismissal compensation, the impact of economic conditions on reasonable notice periods, and the issue of post-termination bonuses and RSU’s.  The court found that: pre-cut compensation was applicable through the notice period, economic conditions tend to increase reasonable notice periods, and that the bonus and RSU were not payable to the employee in these circumstances.    

Constructive Dismissal

The employer argued that the reasonable notice compensation should be based on the post-cut income; the employee argued that she had been constructively dismissed 1-month prior, so the income at that time (the pre-cut income) should apply. 

The court found that this reduction in income of between “16.6% and 20%” was a significant breach of the employee’s employment contract by the employer.  The court also found that, even though the employee had never actually resigned, it was a constructive dismissal which commenced at the time of the breach by the employer.  Further, the Court found that even though 25 days had passed after the compensation cut with no action by the employee, this was not long enough for the employee to have been deemed to have condoned the change, “in the turbulent economic conditions”.

Economic Conditions and Reasonable Notice

The caselaw has been somewhat inconsistent on the subject of what impact the current bad economic conditions should have on reasonable notice periods.

The court in Kosteckyj found that poor economic conditions at the time of termination of employment tend to favor a longer reasonable notice period.  This case is among several recently in Alberta to swing the weight of authority on this issue in favor of longer notice periods for employees terminated in poor economic conditions.

RSU’s and Bonuses

The court found that the employee was not entitled to a claimed bonus, because it would have been payable after the notice period had expired.

The court also applied the new SCC case of Matthews v Ocean, and found that the employee was not entitled to any RSU’s, because the terms of the RSU plan made clear that they were not payable after the termination of an employee.  This is the least favorable aspect of this case to employees, because it applies Matthews in a narrow fashion in favor of employers.

My Take

I think the most significant point in Kosteckyj is about when a constructive dismissal occurs in specific circumstances.  I have noticed a recent trend of employers of reducing compensation shortly before termination of employment.  They then attempt to assert the reduced compensation through the notice period and argue the initial reduction was not connected to the termination of employment. 

As an advocate, this sort of behavior riles me up because this sequence of events is sometimes (if not often) engineered by the employer prior to the reduction, but it is not necessarily easy to prove as a plaintiff.  I have been arguing for some time now that this legal principle from Kosteckyj, which will sometimes prevent employers from succeeding at this severance-reduction maneuver, is probably the law.  It is nice to see the Alberta courts agree.

The Kosteckyj v Paramount case can be found at the following link on CanLii: