Can Your Employer Lower Your Pay in Ontario?

No, your employer cannot unilaterally reduce your pay without your agreement. Your salary is a fundamental term of your employment contract. Reducing it without your consent is a breach of contract and likely constitutes constructive dismissal.

The basic rule: Any reduction to your pay requires your explicit agreement (which could have been provided in your employment contract). Your employer must get your consent and you can say no.

Absolutely not. Employers cannot reduce your wages as punishment or discipline for poor performance, mistakes, or misconduct. If your employer cuts your pay as punishment, this is both a violation of employment standards laws and it can be a constructive dismissal.

If your employer proposes a pay reduction and you agree to it, the new rate becomes your salary going forward. However, you’re under no obligation to accept the reduction in compensation.

Some contracts include clauses permitting salary adjustments based on performance, company profitability, or other factors. Even with such clauses, reductions must be reasonable and applied fairly. These clauses are often challenged and may not be enforceable if they’re too broad or unfair.

Constructive dismissal occurs when your employer makes a fundamental change to your employment terms without your consent, essentially forcing you to quit.

Examples of constructive dismissal:

• Any reduction in base salary
• Significant reduction in commission or bonus structure
• Reduction in hours that decreases total pay
• Removal of benefits that form part of your compensation

Your rights if constructively dismissed:

• Treat yourself as terminated
• Refuse to accept the reduced pay
• Sue for wrongful dismissal and claim full severance entitlements

Step 1: Don’t agree immediately

If your employer proposes a pay reduction, don’t sign anything or verbally agree. Ask for time to consider and review the proposal.

Step 2: Get it in writing

Request written details of the proposed change, the reasons, and when it takes effect.

Step 3: Review your employment contract

Check whether your contract permits salary adjustments. Look for clauses about performance-based pay, economic conditions, or salary reviews.

Step 4: Document everything

Keep emails, memos, and notes about the pay reduction announcement and any conversations.

Step 5: Consult an employment lawyer immediately

They’ll tell you whether you have a constructive dismissal claim and what compensation you’re entitled to.

Step 6: Decide your response

You have three options:

Option 1: Accept the reduction – If you genuinely agree, get the new terms in writing including any severance waiver implications.

Option 2: Refuse and claim constructive dismissal – Treat yourself as terminated, stop working, and sue for severance as if you were fired without cause.

Option 3: Work under protest – Continue working at the reduced rate while pursuing a constructive dismissal claim. This preserves income while you litigate. Make clear in writing you’re working under protest and not accepting the change.

Don’t delay: You typically must act within a reasonable time (weeks, not months) or risk being seen as accepting the change.

Unionized employees: Collective agreements govern pay changes. Unions must negotiate any reductions.

Commission-based roles: Changes to commission structures are treated like salary reductions if they significantly reduce your earnings.

Variable pay: If your contract explicitly states bonuses are discretionary, the employer has more flexibility, but they still can’t act in bad faith.

Independent contractors: Different rules apply. Clients can change rates at contract renewal, but this depends on your agreement terms.

If your employer has reduced your pay or threatened to, you have legal rights and options. 

Contact Pinto Shekib LLP at info@pintoshekib.ca or 416.901.9984 to schedule a confidential consultation about pay reductions and constructive dismissal.