Constructive Dismissal Lawyer
An employer's unilateral alteration of the employment arrangment can prove particularly problematic for the impacted employee, demanding appropriate responsive action to secure the employee's rights and prosecute a constructive dismissal claim.
Neufeld Legal P.C. can be reached by telephone at 403-400-4092 / 905-616-8864 or email Chris@NeufeldLegal.com
Constructive Dismissal arises where an employer has not directly fired an employee, but instead (i) has failed to comply with the employment contract in a major respect; (ii) unilaterally changed the terms of employment; or (iii) expressed a settled intention to do either thus forcing the employee to quit. This non-compliance or change to the employment arrangement must be significant and affect the core of the employment contract to constitute constructive dismissal, as opposed to some minor change or alteration.
Certain examples of an employer's unilateral actions constituting constructive dismissal can include:
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changing an employee's powers or responsibilities (loss of status or prestige);
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altering the particulars of an employee's job;
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reducing an employee's compensation;
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demoting an employee (without justification or consent);
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changing an employee's work conditions;
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relocating an employee's workplace (making for a longer or more difficult commute);
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changing an employee's shifts or hours of work;
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imposing a suspension or leave of absence;
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being subjected to a toxic work environment.
However, the entirety of the employment situation must be analysed and assessed against the prevailing law of the employment jurisdiction to determine whether or not the legal criteria for constructive dismissal have been created by the employer and the responsive action that must be taken by the impacted employee.
It is not sufficient that the legal elements of constructive dismissal exist, as it is also necessary that the impacted employee take appropriate responsive action so as to claim constructive dismissal (and such action must be taken within a reasonable period of time); failing which the impacted employee might effectively concede to their employer's unilateral and substantial alteration of a fundamental term or condition of their employment, and thereby be legally deemed to have accepted this change to their employment arrangement.1
Whether or not one can substantiate a legal claim for constructive dismissal is based on an objective view of the employer's conduct. It is not merely based on how the employee personally perceives their own individual situation. It is the employer's failure to meet its contractual obligations that distinguishes a constructive dismissal from an ordinary resignation. The seriousness of the employer's failure, as well as the amount of deliberation apparent in the employer's actions, are important factors in the legal analysis of constructive dismissal.
The legal test of constructive dismissal was established by the Supreme Court of Canada in Potter v. New Brunswick Legal Aid Commission, with a brief summary of the Potter Test having been put forth by the Ontario Court of Appeals in Brake v. PJ-M2R Restaurant Inc., and affirmed in other provincial courts, such as by the Alberta Court of Queen’s Bench in Kosteckyj v. Paramount Resources Ltd., which stated that:
The test that Potter establishes for constructive dismissal consists of two branches. Satisfaction of either branch is sufficient for a finding of constructive dismissal.
The first branch of the Potter test has two steps. First, the court must determine objectively whether a breach has occurred. To do so, the court must ascertain whether the employer has unilaterally changed the contract. If an express or an implied term gives the employer the authority to make the change or if the employee consents or acquiesces in it, the change is not a unilateral act and will not constitute a breach. To qualify as a breach, the change must also be detrimental to the employee. Second, once it has been objectively established that a breach occurred, the court must ask whether 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.
The second branch of the Potter test necessarily requires a different approach. On this branch, constructive dismissal consists of conduct that, when viewed in light of all the circumstances, would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract.
Now that we’ve reviewed a summary of the constructive dismissal test, we will proceed to the more expansive explanation that the Supreme Court of Canada actually articulated in the Potter decision, such that we are actually covering all the critical aspects that the Supreme Court of Canada believed were essential to properly determining the applicability of constructive dismissal in an employment situation.
When an employer’s conduct evinces an intention no longer to be bound by the employment contract, the employee has the choice of either accepting that conduct or changes made by the employer, or treating the conduct or changes as a repudiation of the contract by the employer and suing for wrongful dismissal. This was clearly stated in Farber, the leading case on the law of constructive dismissal in Canada. Since the employee has not been formally dismissed, the employer’s act is referred to as “constructive dismissal”. The word “constructive” indicates that the dismissal is a legal construct: the employer’s act is treated as a dismissal because of the way it is characterized by the law.
The burden rests on the employee to establish that he or she has been constructively dismissed. If the employee is successful, he or she is then entitled to damages in lieu of reasonable notice of termination. In Farber, the Court surveyed both the common law and the civil law jurisprudence in this regard. The solutions adopted and principles applied in the two legal systems are very similar. In both, the purpose of the inquiry is to determine whether the employer’s act evinced an intention no longer to be bound by the contract.
Given that employment contracts are dynamic in comparison with commercial contracts, courts have properly taken a flexible approach in determining whether the employer’s conduct evinced an intention no longer to be bound by the contract. There are two branches of the test that have emerged. Most often, the court must first identify an express or implied contract term that has been breached, and then determine whether that breach was sufficiently serious to constitute constructive dismissal. Typically, the breach in question involves changes to the employee’s compensation, work assignments or place of work that are both unilateral and substantial. In the words of Justice McCardie in Rubel Bronze, “The question is ever one of degree.”
However, an employer’s conduct will also constitute constructive dismissal if it more generally shows that the employer intended not to be bound by the contract. In applying Farber, courts have held that an employee can be found to have been constructively dismissed without identifying a specific term that was breached if the employer’s treatment of the employee made continued employment intolerable. This approach is necessarily retrospective, as it requires consideration of the cumulative effect of past acts by the employer and the determination of whether those acts evinced an intention no longer to be bound by the contract.
The first branch of the test for constructive dismissal, the one that requires a review of specific terms of the contract, has two steps: first, the employer’s unilateral change must be found to constitute a breach of the employment contract and, second, if it does constitute such a breach, it must be found to substantially alter an essential term of the contract. Often, the first step of the test will require little analysis, as the breach will be obvious. Where the breach is less obvious, however, as is often the case with suspensions, a more careful analysis may be required.
In Farber, Justice Gonthier identified such a change as a “fundamental breach”. The term “fundamental breach” has taken on a specific meaning in the context of exclusionary or exculpatory clauses. To avoid confusion, I will therefore use the term “substantial breach” to refer to breaches of this nature. The standard nevertheless remains unchanged — a finding of constructive dismissal requires that the employer’s acts and conduct “evince an intention no longer to be bound by the contract”.
The two-step approach to the first branch of the test for constructive dismissal is not a departure from the approach adopted in Farber. Rather, the situation in Farber was one in which the identification of a breach required only a cursory analysis. The emphasis in Farber was on the second step of this branch, as the evidentiary foundation for the perceived magnitude of the breach was the key issue in that case. However, the identification of a unilateral act that amounted to a breach of the contract was implicit in the Court’s reasoning. In many cases, this will be sufficient. The case at bar, however, is one in which the claim can be properly resolved only after both steps of the analysis have been completed.
At the first step of the analysis, the court must determine objectively whether a breach has occurred. To do so, it must ascertain whether the employer has unilaterally changed the contract. If an express or an implied term gives the employer the authority to make the change, or if the employee consents to or acquiesces in it, the change is not a unilateral act and therefore will not constitute a breach. If so, it does not amount to constructive dismissal. Moreover, to qualify as a breach, the change must be detrimental to the employee.
This first step of the analysis involves a distinct inquiry from the one that must be carried out to determine whether the breach is substantial, although the two have often been conflated by courts in the constructive dismissal context. Justice Gonthier conducted this inquiry in Farber, in which an employee had been offered a new position that was found to constitute a demotion. He stated that “the issue of whether there has been a demotion must be determined objectively by comparing the positions in question and their attributes”.
Once it has been objectively established that a breach has occurred, the court must turn to the second step of the analysis and ask whether, “at the time the [breach occurred], 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”. A breach that is minor in that it could not be perceived as having substantially changed an essential term of the contract does not amount to constructive dismissal.
The kinds of changes that meet these criteria will depend on the facts of the case being considered, so “one cannot generalize”. In each case, determining whether an employee has been constructively dismissed is a “highly fact-driven exercise” in which the court must determine whether the changes are reasonable and whether they are within the scope of the employee’s job description or employment contract. Although the test for constructive dismissal does not vary depending on the nature of the alleged breach, how it is applied will nevertheless reflect the distinct factual circumstances of each claim.
The uniqueness of the application of this first branch of the test is evident in cases involving administrative suspensions. In all cases, the primary burden will be on the employee to establish constructive dismissal, but where an administrative suspension is at issue, the burden will necessarily shift to the employer, which must then show that the suspension is justified. If the employer cannot do so, a breach will have been established, and the burden will shift back to the employee at the second step of the analysis.
The second branch of the test for constructive dismissal necessarily requires a different approach. In cases in which this branch of the test applies, constructive dismissal consists of conduct that, when viewed in the light of all the circumstances, would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract. The employee is not required to point to an actual specific substantial change in compensation, work assignments, or so on, that on its own constitutes a substantial breach. The focus is on whether a course of conduct pursued by the employer “evince[s] an intention no longer to be bound by the contract”. A course of conduct that does evince such an intention amounts cumulatively to an actual breach. Justice Gonthier said the following in this regard in Farber: "In cases of constructive dismissal, the courts in the common law provinces have applied the general principle that where one party to a contract demonstrates an intention no longer to be bound by it, that party is committing a fundamental breach of the contract that results in its termination."
Thus, constructive dismissal can take two forms: that of a single unilateral act that breaches an essential term of the contract, or that of a series of acts that, taken together, show that the employer no longer intended to be bound by the contract. The distinction between these two forms of constructive dismissal was clearly expressed by Lord Denning in a leading English case, Western Excavating (ECC) Ltd. v. Sharp. First of all, an employer’s conduct may amount to constructive dismissal if it “shows that [he] no longer intends to be bound by one or more of the essential terms of the contract”. But the employer’s conduct may also amount to constructive dismissal if it constitutes “a significant breach going to the root of the contract of employment”. In either case, the employer’s perceived intention no longer to be bound by the contract is taken to give rise to a breach.”
This is the conceptual and legal basis upon which constructive dismissal is premised in the Canadian judicial system, representing the legal approach that must be taken should an employee seek to pursue an action of constructive dismissal against their employer. If you believe that you have been subjected to such a unilateral change in your employment arrangment or are otherwise concerned about the particulars of your employment situation, contact our law firm for a free initial consultation at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.
(1) There have been cases where courts have held that there has been a constructive dismissal even though the impacted employee remained in the continued employment of the employer, including where the employee had continued to work under the new conditions in order to mitigate damages, and either protested against these new conditions explicitly or by making it clear that the impacted employee still reserved their right to take legal action. In those particular cases, the employee was said to have not condoned or accepted the change in working conditions, with the employee having either formally commenced legal proceedings in respect of the change while remaining in the continued employment of the employer, or while not having formally initiated court proceedings had been attempting to negotiate the matter while remaining at work. Nevertheless, it is important to remember that every scenario is fact-specific, such that engaging legal counsel with respect to the specifics of one's own particular situation is absolutely essential.
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