October 28, 2019

The Construction Of Constructive Dismissal


Constructive dismissal occurs when an employee resigns or quits due to a fundamental or material change to the employment relationship.  These changes can include new job duties and responsibilities, a change to pay structure, a demotion, relocation, or the cultivation of a workplace that creates a hostile work environment. In these circumstances the courts have acknowledged that the employment relationship cannot continue and the resignation can be invalid and the employee may be owed severance.

How Is Constructive Dismissal Determined?

Constructive dismissal is a complicated area of employment law and has been the subject of judicial debate for decades. Although the debate will continue, the Supreme Court of Canada somewhat recently provided a two-step process to evaluate whether or not constructive dismissal has occurred.

Step #1: Did the employer unilaterally breach a term of the employment contract?

  • The contractual term can be express or implied. The breach must be serious and can be a single act or a series of acts that together breach an essential term of the employment contract. The breach is viewed from the perspective of a reasonable person.

Step #2: Was the employer’s breach of the employment contract justified?

  • If the court finds that an express or implied term of the contract was breached, the employer must show that there was a legitimate business reason for the breach and determine whether or not the employer acted in good faith.

What Does This Mean For Employers?

Employers need be cautious about making any changes to an employee’s contract, working conditions, remunerations or other significant employment terms.  Employers must also be cautious when suspending employees, particularly when a suspension may be seen as unjustified and must continuously strive to ensure a safe and healthy working environment.

What Does This Mean For Employees?

Any change to the employment relationship should be reviewed by legal counsel.  While some changes can be justified, other changes may be outside the scope of the employer’s authority or the parameters of the employment contract and may fundamentally alter the employment relationship. If you are of the view that a significant change has occurred, then you should consult with legal counsel in order to be advised of your potential options.

Walsh LLP Is Here To Help

These criteria are not meant to be an exhaustive list of all the factors an employer or an employee should consider in a potential constructive dismissal situation. Many more factors are relevant to minimize the risk of inadvertently creating a constructive dismissal situation where severance and other possible damages may be owed. That is, the employer may unintentionally incur even more liability to the former employee (including human rights complaints or other claims). These liabilities can be significant and harm your reputation and your bottom line.

For this reason, we strongly encourage employers to seek legal advice if they are considering making changes to the employment relationship, restructuring, or have other employment questions. Likewise, we encourage employees, to seek legal advice to ensure that their rights are being protected and they are receiving fair compensation from their employer in respect to proposed changes to the employment contract.

For assistance or additional information on terminations and severance and legal considerations specific to your circumstances, whether as an employer or an employee, please contact Walsh LLP’s Employment Lawyers.