In McFarlane v. King Ursa Inc., 2025 ONSC 3553, the Superior Court awarded a former employee (the “Employee”) more than $290,000 in damages in respect of constructive dismissal as well as $40,000 in bad faith damages. The Employee held an important position with her Employer, but was ordered to take a pay-cut and demoted upon her return from maternity leave.
The Court’s findings in this case may be valuable for employers contemplating demotions, particularly if financial uncertainty is the basis for the same. In particular, the Court’s conclusions could inform employers on how to communicate such decisions and may also help limit liability if an employer intends to alter the terms and conditions of an employee’s employment without their consent.
The Employee was employed by a marketing agency. The Employer encountered financial difficulties during the COVID-19 pandemic that resulted in a reduction in employee headcount. Despite this, in or around October 2021, the Employer promoted the Employee to the position of Executive Vice-President, Media & Analytics. In so doing, it also increased the Employee’s compensation by $80,000. Shortly thereafter, the Employee went on maternity leave.
Commencing in early 2023, the Employer communicated to the Employee that it was experiencing significant cash flow issues and that it was looking at ways to keep the company solvent. The other executives of the business took compensation reductions, and the Employer...
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