The Two Things You Need To Prove For Constructive Dismissal

We often meet with employees who face unwanted changes to their employment situation imposed on them by their employer. Sometimes this may be a demotion or decrease in pay. In other cases there may be a number of less drastic changes to the terms of employment, but to such an extent the employee is left feeling the employer is wanting the employee to leave.

The law has long recognized these situations may be a constructive dismissal of the employee. That is, while the employee has not expressly been fired by the employer, the law considers the employer’s actions to be a termination of the employment relationship. A constructive dismissal is a wrongful termination of employment as if the employee has been fired without just cause. In its decision in Potter v. New Brunswick Legal Aid Services Commission, [2015] S.C.J. No. 10, the Supreme Court of Canada has clarified the legal test for identifying when a constructive dismissal has occurred.

In the case, the Plaintiff had been the Executive Director for the Defendant. They were in the process of negotiating a buy-out for the remainder of the Plaintiff’s employment term when the Plaintiff went on extended medical leave. Negotiations had not concluded and the Defendant decided to recommend to the Department of Justice that, if negotiations did not reach a resolution, the Plaintiff’s employment be terminated for cause. At the same time, the Plaintiff was placed on an indefinite administrative suspension from employment with pay. No reasons were given to the Plaintiff for the suspension. The Plaintiff considered that he had been constructively dismissed and commenced legal action. He was unsuccessful at Trial and in the Court of Appeal. The Supreme Court of Canada disagreed with both lower courts.

The majority reasons were written by Justice Wagner. In his decision, Justice Wagner clarified that there are two types of constructive dismissal. In the first type, it must be found that the employer has breached a term of the employment agreement, express or implied. Once a breach is found, it must then be determined if the breach is substantial, to an extent it substantially alters the employment relationship. In the second type of constructive dismissal, a dismissal will be found if the employer’s conduct has shown an intention to no longer be bound by the employment agreement. In the second type, it may be a series of smaller breaches by the employer or there may even be no actual breach of the employment agreement. Rather, the Court may examine the employer’s cumulative treatment of the employee to see if it shows an intention to no longer be bound by the agreement.

In this case, Justice Wagner found the administrative suspension was a breach of the employment agreement between the Defendant and Plaintiff. There was no express term in their employment agreement authorizing an administrative suspension.

Further, while there is an implied authority to suspend an employee, it is not unfettered. Work is a fundamental part of an individual’s life and it may only be taken away with a good faith business justification. Whether there is such a justification depends on the existence of a legitimate business reason for the suspension, good faith by the employer, the duration of the suspension being as minimal as possible and whether the suspension is with pay or not. If the suspension is not justifiable and reasonable, it will be a breach of the employment agreement.

In this case, although it was a suspension with pay, Justice Wagner found the suspension of the Plaintiff to not be justifiable. It was of indefinite duration. There was a lack of good faith by the Defendant in that no reasons were given to the Plaintiff for the suspension and the Defendant secretly intended to terminate the Plaintiff anyways. That a buyout was being negotiated did not supply the necessary legitimate business reason. The Defendant breached the employment agreement.

With regard to the second step, whether the breach was substantial, Wagner J. considered if a reasonable person in the Plaintiff’s situation would have felt that the essential terms of his employment agreement were substantially altered. Viewed objectively, Justice Wagner found that a reasonable person in the Plaintiff’s shoes would have seen a unilateral, unauthorized suspension of indefinite duration without reasons to be a substantial change to his employment agreement. The Plaintiff was constructively dismissed.

Justice Cromwell wrote the minority reasons, but he too agreed that the Plaintiff was constructively terminated. He looked to the Defendant’s conduct and found that this showed an intention to not be bound by the employment agreement. The surrounding circumstances included that the Defendant wanted to terminate the Plaintiff anyway, the Defendant wanted the Plaintiff out of the workplace and suspended him indefinitely and the Defendant provided the Plaintiff with no assurance that it would continue to pay him in the future. Based on this, Cromwell J. found that the Defendant objectively showed an intention to not be bound by its agreement with the Plaintiff. The Plaintiff was constructively terminated.

The Supreme Court of Canada’s decision in Potter has clarified the legal analysis for finding if an employee has been constructively dismissed. In situations of a significant unilateral act by the employer, one looks to whether this is a breach of the employment agreement. If it is, then it must be determined if it is a substantial breach, such that a reasonable person would think the essential terms of the employment  agreement have been substantially altered by the employer. Small breaches or cumulative conduct by the employer may also ground a constructive dismissal. This will be the case if a reasonable person would think that such actions by the employer indicate an intention by the employer to no longer be bound by the employment agreement.

In addition to this, the Supreme Court of Canada decided that employers do not have an implied unfettered right to suspend an employee. Outside an express contractual term, an employee may only be suspended if the employer has a good faith business justification. Otherwise, to suspend an employee is to breach the employment agreement. The decision in Potter also underlines the importance of good faith in dealings between and employer and employee. Important to the Court’s decision was the lack of forthrightness and transparency that Defendant had in its dealings with the Plaintiff.