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Constructive dismissal: New reality under COVID-19

Tuesday, May 12, 2020 @ 10:43 AM | By Sean O’Donnell


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Sean O’Donnell
When an employer unilaterally amends a fundamental term of the employment contract, the employee has three choices:

1. Accept the change, in which case, the employment will continue under the altered terms;

2. Reject the change, allege constructive dismissal and sue for damages if the employer persists in treating the relationship as subject to the varied term; or

3. Reject the change and wait for a response from the employer, who may respond by terminating the employee and offering re-employment on new terms, but if the worker is not fired and allowed to continue working, the employee is entitled to insist on adherence to the terms of the original contract.

In the context of COVID-19, these same choices are more nuanced than ever before. Despite the new Canada Emergency Wage Subsidy (CEWS) and a host of other government measures, employers across Canada are turning to temporary layoffs in an effort to save their businesses. Employee-side employment lawyers are tasked with navigating an environment likely none of us have ever seen before, advocating for employees amid a global pandemic. These new challenges require new thinking, particularly in response to claims of constructive dismissal.

This two-part article will provide a brief summary of the law in Canada relative to constructive dismissals, followed by the changes happening in real time relative to constructive dismissal strategy and the impact of COVID-19.

The Supreme Court of Canada’s 2015 decision in Potter v. New Brunswick Legal Aid Services Commission [2015] 1 S.C.R. 500 recognized a two-branch test for constructive dismissals, including:

1. When the employer’s single unilateral act breaches an essential term of the employment contract; or

2. When the employer’s conduct demonstrates that it no longer intends to be bound by the employment contract.

A constructive dismissal is a “legal construct” with the employer’s act or conduct being treated as a dismissal because of the way it is characterized by the law (para. 2). If an employer makes a substantial change to the terms of an employee’s employment without the consent of the employee or demonstrates an intention to no longer be bound by the terms of the contract, the employee has the option of treating his or her employment as having been terminated. As a result, the employee’s departure will not be viewed as a resignation but, instead, a termination of employment for which severance may be owed.

Under the first branch of the Potter test, which is most commonly used, the breach or the fundamental change to one of the terms of the contract must go to the very heart of the employment contract. This requires a review of the specific terms of the employment contract that has been breached.

If it is objectively established that a breach has occurred, the next step will be to consider whether the breach was sufficiently serious to constitute a constructive dismissal. In other words, whether there has been a substantial change to one of the essential terms. Minor changes will not trigger a constructive dismissal. The second step of this analysis requires the determination of whether a reasonable person in the same situation of the employee would have felt that the essential terms of the employment contract were being substantially changed. Determining whether a breach engenders a constructive dismissal depends on the facts of the case.

Under the second branch of the Potter test, a constructive dismissal may occur when the employer’s conduct would lead a reasonable person to conclude that the employer no longer intended to be bound by the contract. It does not have to be a single event, instead a cumulative course of conduct which demonstrates the requisite breach and/or intention can suffice. Further, it is the employer’s perceived intention which is relevant; that is, the perspective of a reasonable person in the same circumstances as the employee. Whether or not the employer actually “intended” to no longer be bound by the contract is usually irrelevant for the purpose of making out this test.

Common examples that may trigger a constructive dismissal include the following non-exhaustive list:

1. Significant reduction in the employee’s compensation;

2. Demotion;

3. Requiring the employee to move to a different geographical location (provided this is not a term agreed to in the employment contract);

4. Requiring the employee to work in a poisoned work environment;

5. Failing to pay the employee in accordance with the employment contract; and

6. Laying off the employee (subject to a properly drafted clause within the employment agreement that allows for this).

The burden rests on the employee to prove on the balance of probabilities that they have been constructively dismissed. This is an important caveat, and one which brings with it significant consequences.

If, for example, an employee is unable to prove that they have been constructively dismissed, they will be found to have resigned from their employment, thereby disentitling them to any severance package whatsoever. In addition to this risk, employees who have sued their employer for constructive dismissal and failed may be required to pay the employer’s legal costs.

Therefore, constructive dismissal claims are not without risk to the employee, and they should not be taken without first obtaining legal advice from an experienced employment lawyer.

This is part one of a two-part series.

Sean O’Donnell is an advocate at SJOLegal with extensive experience in employment, human rights and civil litigation, having practised for Canada’s leading litigation firms in these areas, among myriad other areas of law. He was called to the bar in 2010. This article was written with the assistance of Carter G. Perks, student-at-law.

Photo credit / rudall30 ISTOCKPHOTO.COM

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