The Supreme Court of Canada (“SCC”) had to decide whether an employee had been dismissed when his employer placed him on an indefinite, paid suspension (see Potter v. New Brunswick (Legal Aid Services Commission), 2015 SCC 10). The SCC’s decision involved a review of “constructive dismissal” – finding that an non-union employee has been dismissed because of the employer’s conduct, even though the employer did not explicitly dismissed the employee.
The SCC explains that an employee is constructively dismissed when the employer’s conduct indicates an intention to no longer be bound by the employment contract with the employee. For example, constructive dismissal might occur when an employer significantly reduces an employee’s salary. When constructively dismissed, the employee can either accept the employer’s conduct (i.e. usually by accepting the changed employer terms and continuing to work), or treat the conduct as a dismissal and sue the employer for wrongful dismissal.
What is Constructive Dismissal?
Constructive dismissal can come in two basic forms. The first kind is a single unilateral act that breaches an essential term of the employment contract.
A breach of this kind occurs when the employer makes a unilateral change to an express or implied term of the contract (i.e. without the employee’s permission/approval) that has a detrimental effect on the employee (i.e. a significant increase in pay doesn’t count). However, a change isn’t unilateral if it’s permitted by the contract (e.g. a term of the contract authorizes the employer’s reduction of salary) or the employee affected acquiesces to the change. If there’s been a breach, the next step is to determine if a reasonable person, in the same situation as the employee, would have felt that the essential terms of the employment contract were being substantially changed. This weeds out “minor” breaches of the employment contract from amounting to constructive dismissal. As is often the case, whether or not a breach is substantial depends on the situation at hand.
The second main kind of constructive dismissal is a series of actions, looked at together, that shows that the employer no longer intends to be bound by the employment contract (such as erosion of conditions over time or conduct that may make the workplace intolerable).
What sets this method apart from the first is that it is not concerned about one particular act of the employer and whether that act breached the contract in a substantial way. Rather, the employer’s overall course of conduct is looked at to decide whether, as a whole, the employer has demonstrated that it no longer intends to be bound by the contract.
What happened in Potter?
Mr. Potter was the Executive Director of the Legal Aid Services Commission in New Brunswick. He went on a medical leave, but the relationship with his employer went downhill prior to the leave and there were negotiations for a buy-out ongoing. When Mr. Potter was ready to return from his leave, the employer instructed him to remain away from work, but continued his remuneration. The employer did not provide a reason for the paid suspension and it was indefinite. Additionally, the employer replaced Mr. Potter during the suspension and was taking steps to dismiss him for just cause during the suspension. Mr. Potter made a claim for constructive dismissal approximately two months later.
In Potter, the SCC determined that the employment contract did not expressly give the employer the power to put the employee on administrative suspension with pay. As such, the main issue was whether the employer had an implied power to suspend as it did, which involved asking whether the suspension was reasonable and justified. Ultimately, the SCC found that the suspension was not reasonable or justified because, among other things, the employer failed to give any reasons to the employee for his suspension. The SCC noted that an unauthorized administrative suspension would, in many cases be considered a substantial change to the contract (and therefore a breach of the contract). The employee was therefore constructively dismissed.
Workplace Lessons
Potter an example of an employer conduct that was neither expressly nor impliedly authorized by the employment contract. The suspension was a constructive dismissal in this case, but not all suspensions will amount to constructive dismissal.
Note that a paid suspension (commonly called an “administrative leave” in the workplace) is very different than an unpaid suspension, which almost always amounts to a constructive dismissal.
For employers, having an enforceable, written employment contract and getting prior legal advice about implementing and communicating suspensions provides can limit exposure to constructive dismissal claims.
While administrative suspensions were the focus for the SCC, many other changes to employment terms have been or could be subject to a constructive dismissal claim.
To find out more, or for help preparing employment contracts that make sense for your workplace, contact one of the lawyers in the Labour and Employment Practice Group at Taylor McCaffrey LLP.
Acknowledgements
Peter would like to thank Kenneth Dolinsky of Taylor McCaffrey LLP for his contribution to this article.
Peter is an associate with Taylor McCaffrey LLP practicing labour and employment law and occupational safety and health. His direct line is 204-988-0316 or email: pmueller@tmlawyers.com. You can follow him on Twitter here or Linkedin here.
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Peter Mueller
Partnerpmueller@tmlawyers.com
Peter is passionate about his work in the Labour & Employment Law field. He is regularly sought after by employers and human resource professionals for his litigation expertise as well as his counsel on day-to-day human resource matters. Peter’s advocacy experience includes acting as the lead negotiator for management in collective bargaining, defending wrongful dismissal lawsuits, and advising clients operating in both non-unionized and unionized workplaces dealing with grievances and arbitrations under collective agreements.