A Closer Look at Constructive Dismissal

Employers know that business is dynamic. Economic or competitive pressures can arise with little warning (as we know from COVID-19), necessitating changes to employment relationships. In unionized relationships, the employer is bound to a collective agreement for a specific term and has virtually no ability to change terms and conditions of employment without the union’s consent. In the non-unionized workplace, employers have more flexibility to change terms and conditions of employment, though obtaining employee consent is always preferred over unilateral action.

How much flexibility do employers have? One step too far and the employer could find themselves on the receiving end of an allegation or lawsuit for constructive dismissal.

In this blog, we take a closer look at constructive dismissal allegations and how to avoid them.

What is Constructive Dismissal?

The law recognizes a constructive dismissal in 2 scenarios.

First, where the employer unilaterally changes a term and condition of employment that a reasonable third party would view as substantial. A reduction of wages or a layoff without express contractual authority (discussed further below) frequently arise as constructive dismissal issues. The requirement that a change be substantial will exclude many frivolous or de minimus claims.

Second, a constructive dismissal may arise where the employer conducts itself in a manner that demonstrates, from the eyes of a reasonable person, that it does not intend to continue the employment relationship. This can happen when an employee is subjected to ongoing abuse and harassment.

In valid cases of constructive dismissal, the employee is entitled to treat the relationship as at an end and sue for wrongful dismissal. That is, compensation in lieu of notice of termination that the employer ought to have provided in order to terminate the relationship lawfully.

Common Constructive Dismissal Scenarios

Here are a few examples of scenarios that may, depending on the circumstances, be considered constructive dismissal.

Demotion

A key element of employment is the character of the position, including whether or not it is supervisory in nature. Employers cannot unilaterally decide to demote employees by eliminating reporting relationships. Courts have found that requiring employees to report to individuals they previously supervised would be considered demeaning, and a demotion.

Decreases in Pay

Employers cannot decide to significantly decrease an employee’s pay, at least without the employee’s consent. Of course, there are few circumstances where an employee would willingly agree to a pay cut. As an unofficial “rule of thumb”, caselaw suggests that a decrease of more than 10% would trigger a constructive dismissal. However, pay cuts of less than 10% with other significant changes could create a constructive dismissal scenario.

Unpaid Suspensions of Layoffs

The foundational legal case about constructive dismissal stemmed from a senior-level employee being issued a paid suspension, which was not an agreed-upon term of their employment contract. It’s also come up again as a recent topic during the pandemic, with debate in the courts as to whether COVID-induced layoffs were, in fact, constructive terminations.

Ultimately, all employment contracts should contain language stating that a suspension or temporary layoff will not be considered a constructive dismissal so long as it is temporary and done within the parameters of employment standards legislation.

Changed Hours or Duties

Changed hours or duties that are substantial could amount to a constructive dismissal.

If an employer changes an employee’s start time from 9 a.m. to 6 a.m., without contractual authority to do so, that may well be grounds for constructive dismissal.

Minor variations would not.

If an employer asks an employee to stay late one night, or if they ask an employee to start a half hour earlier for a week or two while a colleague is on vacation (and compensates the extra time accordingly), this is not constructive dismissal.

Employment agreements should, ideally, incorporate flexibility in hours to allow employers to meet changing business needs. Similarly, employment agreements should contain job descriptions, with the express caveat that duties are subject to change, as the business requires.

Forced Relocation

Relocation of the employer’s premises may constitute a constructive dismissal if the employee must commute an additional, significant distance to the relocated workplace. A move within the same town, creating no meaningful commuting burden for an employee is unlikely to be considered a constructive dismissal.

Unchecked Harassment

Employees victimized by harassment, either by co-workers or supervisors, may be able to assert a claim for constructive dismissal, particularly when the employer fails to appropriately address the issue. Conducting an appropriate investigation and remedying workplace harassment is key to avoiding constructive dismissal claims.

The Upshot

The keys to avoiding constructive dismissal allegations are comprehensive contracts of employment, proactive advice, implementing changes with consent (if possible), communication in good faith and promptly addressing complaints of unfair treatment. The good news for employers is that constructive dismissals are often difficult to prove for employees, so the risk is significant for them. If they are unable to prove constructive dismissal, then they may have simply resigned from employment, disentitling them to any compensation, with partial liability for the employer’s legal fees. That said, no employer wants to face constructive dismissal allegations so avoiding them altogether is ideal.