YOU MAY HAVE BEEN CONSTRUCTIVELY DISMISSED IF:
- Your employer unilaterally reduces your hours, salary and/or benefits significantly.
- Your employer makes fundamental changes to your job duties, such that they have become less desirable or incompatible with the original employment agreement.
- Your employer unilaterally changes your work location without reasonable justification.
- You have been put on an unpaid disciplinary suspension, or a temporary layoff absent an express or implied term.
- You’re experiencing a hostile work environment because you are being harassed, discriminated against and/or mistreated, such that it has become intolerable for you to continue working.
More recently, you may NOT have been constructively dismissed if you have been unpaid leave of absence for refusing to abide by the employer’s vaccination policy.
It is lawful, in extreme and difficult situations, for an employee to treat their employment contract as having been terminated by the employer, even when there has been no actual termination. In other words, even when an employee has not been terminated by their employer, the employee would be considered terminated because the employer’s actions have effectively forced the employee to resign.
In such cases, an employee has been constructively dismissed, and may be entitled to resign while still maintaining all entitlements to severance-related compensation from the employer.
Under Ontario employment law, there are two branches of constructive dismissal.
First Branch of Constructive Dismissal
Most commonly, constructive dismissal may occur when there is a significant breach of an essential term of the contract, such as:
- A unilateral and fundamental change imposed by the employer on the duties or responsibilities of the employment, including the removal of important responsibilities and functions so that the employee has effectively been demoted to a lesser position. Such constructive dismissal may occur even in the absence of a reduction in salary, compensation or benefits;
- a unilateral and significant reduction, without reasonable notice, in the terms of compensation and/or benefits paid to the employee;
- failing to reinstate an employee to their proper position after an authorized leave;
- laying off an employee in breach of the employment contract; and
- a change in work location.
The leading case for this branch of constructive dismissal is Farber v. Royal Trust Co., 1997, in which the courts defined constructive dismissal:
24. Where an employer decides unilaterally to make substantial changes to the essential terms of an employee’s contract of employment and the employee does not agree to the changes and leaves his or her job, the employee has not resigned, but has been dismissed. Since the employer has not formally dismissed the employee, this is referred to as “constructive dismissal”. By unilaterally seeking to make substantial changes to the essential terms of the employment contract, the employer is ceasing to meet its obligations and is therefore terminating the contract. The employee can then treat the contract as resiliated for breach and can leave. In such circumstances, the employee is entitled to compensation in lieu of notice and, where appropriate, damages.
26. To reach the conclusion that an employee has been constructively dismissed, the court must therefore determine whether the unilateral changes imposed by the employer substantially altered the essential terms of the employee’s contract of employment. For this purpose, the judge must ask whether, at the time the offer was made, 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 fact that the employee may have been prepared to accept some of the changes is not conclusive, because there might be other reasons for the employee’s willingness to accept less than what he or she was entitled to have.
In Farbar, the Supreme Court of Canada concluded that the elimination of the employee’s position coupled with the offer of a new one was substantial enough to constitute a fundamental breach and a repudiation of the employment contract.
In Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC the Supreme Court of Canada further clarified the common law test for determining whether constructive dismissal under the first breach has occurred:
- The employer breached an express or implied term of the contract.
- A reasonable employee would consider the breach had “substantially alter[ed] an essential term of the contract.”
- The employee has not accepted the breach.
Moreover, in applying an objective test, the court must ask whether, at the time the breach occurred, a reasonable person in the employee’s shoes would also feel that an essential term of the employment contract was substantially altered.
Second Branch of Constructive Dismissal
On the other hand, the Supreme Court in the court in Potter recognized that constructive dismissal can also occur in less obvious situations, such as a series of acts that, taken together, show that the employer no longer intends to be bound by the contract. Indeed, the origins of this branch of constructive dismissal dates back to the case of Shah v. Xerox Canada Ltd., 1998 in which the Ontario Court of Appeal ruled that it was not necessary for an employee to point to the breach of any particular clause of the contract in cases where the employer’s behaviour, overall, makes continued employment intolerable:
38 Where the conduct of management personnel is calculated to cause an employee to withdraw from the employment, it may, in my judgment, amount to constructive dismissal. The test, I believe, is objective: it is whether the conduct of the manager was such that a reasonable person in the circumstances should not be expected to persevere in the employment. As the particular circumstances are crucial, each case must be decided on its own facts. The test should not be lightly applied. An employer is entitled to be critical of the unsatisfactory work of its employees and, in general, to take such measures—disciplinary or otherwise—as it believes to be appropriate to remedy the situation. There is, however, a limit. If the employer’s conduct in the particular circumstances passes so far beyond the bounds of reasonableness that the employee reasonably finds continued employment to be intolerable, there will, in my view, be constructive dismissal whether or not the employee purports to resign
Therefore, an employee does not have to point to a particular breach of an essential term of their contract if they could establish that continuation of the employment has reasonably become untenable to the employee. The courts have taken a flexible approach to the question of when an employer evinces an intention to no longer be bound to the contract:
- persistent and serious harassment, workplace bullying or discrimination;
- a major change in working conditions, location of employment or terms of employment, or a unilateral, significant reduction without reasonable notice in the terms of compensation paid to the employee; and
- failure to provide reasonable accommodation under the Ontario Human Rights Code.
An example of the court’s flexible approach to the second branch of constructive dismissal can be seen in a less obvious case: Colistro v. Tbaytel, 2019 ONCA 197. The Ontario Court of Appeal ruled that the employer’s actions, which involved re-hiring of a man who had previously been terminated for sexually harassing an employee, made continued employment intolerable for the employee.
When alleging that the employer’s conduct is intolerable, the test requires:
- 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. For example, an employee may point to the fact that an employer has failed to investigate claims of harassment.
- The employee has not accepted the breach.
In such circumstances, an employee may have the right to treat the job as terminated, even where the employer has no specific intention to terminate or end the employment. However, employees must be careful not to wait too long to protest the change to the terms of employment, otherwise they will be deemed to have accepted the changes.
Ultimately, in determining whether the essential terms of the employment contract have been breached, each case will be decided on the basis its own facts and situation. The courts will be confronted with the challenge of balancing an employer’s claim that they had to make changes for legitimate business needs, such as restructuring, and an employee’s interests in preserving their status quo.
An example of this delicate balance can be seen in the recent case, Van Hee v Glenmore Inn Holdings Ltd., 2023, decided by the Alberta Court of Justice. The court concluded that:
[79] The law, applied to the facts of this case, supports the conclusion that the Policy was a reasonable, justified and lawful response by the Defendant to the extraordinary circumstances of the Pandemic in 2021. Placing the Plaintiff on unpaid leave balanced the Defendant’s business interests, statutory and contractual obligations, the rights of its employees to a safe work environment, and the safety concerns of its customers, while ensuring that individuals like the Plaintiff could refuse to get vaccinated without termination of employment and instead, choose an unpaid leave of absence.
Therefore, the employee who is forced to go on an unpaid leave of absence because of their refusal to be vaccinated was not constructively dismissed because the employer had acted in good faith for legitimate business reasons.
A claim of constructive dismissal is not without risk and should be made only after thorough consideration of the circumstances with a qualified Toronto employment.