Home » Avoiding Constructive Dismissal – The Supreme Court of Canada Revisits A Key Case

Avoiding Constructive Dismissal – The Supreme Court of Canada Revisits A Key Case

Leanne Standryk

It has long been recognized by the courts that the employment relationship is often considered essential to an individual’s sense of identity. This is the primary reason that employers are held to a high standard when it comes to dealing with employees. Failure to meet this standard whether intended or not can bring with it considerable liability.

Generally, Employers understand that an employee dismissal can fall into two categories:

  1. Express dismissal where the employer decides to terminate the employment relationship whether with or without cause and expressly informs the employee; or
  2. Constructive dismissal, where the employer effects a unilateral fundamental change to a material term of the employment relationship.

In the context of a constructive dismissal, it is the employer’s unilateral decision to fundamental alter a term of employment that demonstrates the employer no longer intends to be bound by the contractual relationship thereby entitling an employee to consider the contract to have been repudiated and pursue a claim for damages.

In the non-union context there has been a level of uncertainty surrounding the authority of an employer to suspend an employee and whether that suspension triggers a constructive dismissal. The Supreme Court of Canada (SCC) in the recent decision of Potter v. New Brunswick Legal Aid Services Commission clarified the principle of constructive dismissal particularly surrounding an employer’s authority to suspend.

In Potter v. New Brunwsick Legal Aid Services Commission, the Commission suspended Potter with pay indefinitely while the parties negotiated a buy-out of the employment contract just prior to Potter returning from a medical leave of absence.  At that time, the Commission advised Mr. Potter that he would be on a suspension with pay until further notice, while someone else was given his duties. Subsequently, the Commission stopped paying him altogether and considered Mr. Potter to have effectively resigned when Potter commenced a court action claiming that he had been constructively dismissed. The courts were tasked with determining whether this was a voluntary resignation or a constructive dismissal.

The trial court and appellant court agreed with the Employer, concluding that Potter had resigned and not constructively dismissed. The SCC overturned the lower court’s decision in a 7-0 decision concluding that the Employer lacked the express authority to suspend the employee and failed to provide any reason for the suspension. Accordingly the conduct of the employer was neither reasonable not justified and amounted to a constructive dismissal. The SCC indicated that an Employer must: (i) maintain a basic level of honesty and forthright communication with employees that are being suspended, and refrain from acting in secret and stonewalling the employees as in Mr. Potter’s case; and (ii) demonstrate that a non-disciplinary suspension is reasonable and justified.

This SCC provided clarification to the concept of constructive dismissal by revisiting the philosophy behind its design and the test traditionally applied. The SCC laid out the two part test for constructive dismissal as follows: Did the employer’s unilateral conduct breach the contract in a manner that substantially altered the essential terms of the contract?

  1. Did the employer unilaterally breach an express or implied term of the contract?
  2. If the employer breached the employment contract did the breach substantially alter an essential term of the contract?
    1. Would a reasonable person believe an essential term of the employment contract has been substantially changed?

This is a highly fact specific analysis. To this end, a substantial change may take the form of: a single unilateral act by the employer that breaches an essential term of an employee’s employment contract; or, a series of acts by the employer that, taken together, show the employer no longer intends to be bound by the employment contract.

The SCC’s review of the principle of constructive dismissal provides important guidance to employers. Employees must be treated with dignity and respect at all times. Be forthright and honest with employees. Absent express or implied authority, an indefinite administrative suspension may amount to a constructive dismissal. Consider including an express provision in employment agreements that authorize administrative suspensions. Absent reasonable justification an indefinite suspension could amount to a constructive dismissal. Prior to implementing any change to a term of employment consider whether the change would trigger a constructive dismissal.

While the SCC provides clarity around the law of constructive dismissal each case is highly fact specific and the stakes can be high. As a result we recommend employers seek appropriate advice from their labour and employment counsel.

Leanne Standryk are members of the Labour & Employment team at Lancaster Brooks & Welch LLP, and may be contacted to discuss any issue within the Labour & Employment arena. You may reach them at Lancaster Brooks & Welch St Catharines Offices at 905-641-1551. Lbwlawyers.com

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