Constructive Dismissal is a significant concept in Ontario employment law, providing employees with a legal remedy when their employer’s actions fundamentally breach the terms of their employment contract or create intolerable working conditions. In contrast to cases of wrongful dismissal, which tend to be more straightforward, constructive dismissal arises when an employer unilaterally alters an employee’s compensation, job duties, or working environment, effectively breaching the employment contract. To be successful in a claim for constructive dismissal, the employee must be able to demonstrate that the employer’s conduct amounted to a breach of contract, leaving them with no choice but to resign.
Ontario courts have consistently emphasized the importance of protection of employees’ rights in cases of constructive dismissal, focusing on the principle that significant changes to the terms and conditions of employment must be mutually agreed upon. This doctrine serves as an essential safeguard for employees, ensuring that they are not compelled to endure unilateral changes or a hostile workplace environment.
Legal Framework
The 2015 case of Potter v. New Brunswick Legal Aid Services Commission is a seminal decision by the Supreme Court of Canada that clarified the concept of constructive dismissal in employment law.
In this case, Potter, the Executive Director of the New Brunswick Legal Aid Services Commission, was suspended indefinitely with pay while the Defendant employer sought to terminate his contract. Potter argued that this suspension amounted to constructive dismissal, as it breached an essential term of his employment contract.
The Supreme Court ruled in Potter’s favour, stating that, while not every modification to an employment relationship constitutes constructive dismissal, “the employer does not have an unfettered discretion to withhold work” – this constitutes a breach of an essential term of the employment contract, resulting in constructive dismissal. This decision emphasized the importance of good faith and open communication in employment relationships and expanded the scope of constructive dismissal.
This precedent-setting case also established the two-branch test for constructive dismissal.
For an employee to be successful in a constructive dismissal claim, the following criteria must be met:
- The employer must have unilaterally made a substantial change to a fundamental term of the employment contract with this change resulting in a breach of contract. Additionally, a reasonable person in the same situation as the employee must feel that the essential terms of the contract have substantially changed.
- The employer’s conduct, viewed cumulatively, must lead a reasonable person to conclude that the employer no longer intends to be bound by the terms of the contract.
These principles are applied by Ontario courts to assess whether an employee’s resignation was effectively a constructive dismissal caused by the employer’s actions.
Recent Case Law
Although slightly older, the 2018 case of Robinson v. H.J. Heinz Company of Canada LP remains relevant. Robinson had started her career with the Defendant employer in November 1999. During her tenure, she received several promotions of increasing responsibility and seniority. However, in 2015, due to a corporate merger and re-organization, she found that her role had been diminished, her title and responsibilities removed, and her position within the company demoted. She was also informed by the Defendant that there were no future plans for her with the organization. Robinson subsequently resigned and commenced proceedings for constructive dismissal.
The court found that these significant changes to Robinson’s job responsibilities, including the elimination of key duties and increased commute time, amounted to constructive dismissal. In reaching his decision, Justice Stinson utilized the two branch approach mentioned in Potter and concluded that Robinson met the criteria required under the first branch as her employer’s unilateral change was found to substantially alter the essential terms of her contract and constituted a breach of the contract. In satisfaction of the second branch of the test, Justice Stinson found that the Defendant had made it clear that Robinson would not enjoy the promised status for which she had previously contracted and, by doing as such, the Defendant evinced an intention no longer to be bound by the contract.
Upon concluding that Robinson had indeed been constructively dismissed, the court ordered the Defendant to pay Robinson termination pay under the Employment Standards Act (ESA) based on 8 weeks’ pay, severance payment under the ESA based on 15.8 weeks’ pay, common law damages, mitigation expenses, and pre-judgment interest on these sums. This decision underscores that even non-monetary changes can amount to breach of the employment contract.
The case of Cutinho v. Ocular Health Centre Ltd (2021) centered on the legal question of whether placing an employee on Infectious Disease Emergency Leave (IDEL) during the Covid-19 pandemic could be considered constructive dismissal under common law. The Defendant employer implemented IDEL as part of its pandemic response measures and placed Coutinho on leave. Cutinho claimed that this action fundamentally altered her employment terms without her consent, constituting constructive dismissal. In defence, the Defendant argued that the IDEL regulation exempted them from liability.
The Ontario Superior Court disagreed with the Defendant and ruled in favour of Cutinho, stating that the IDEL regulation did not override employees’ established common law rights, reaffirming that an employer cannot unilaterally impose substantial changes to the terms of employment, even during extraordinary circumstances, such as a global pandemic. This landmark decision underscored the enduring protections afforded to employees under common law, regardless of temporary legislative measures. It also reinforced the principle that employees’ rights remain intact, even in the face of unprecedented disruptions.
In the 2010 case of Russo v. Kerr Brothers Limited, the Defendant employer unilaterally reduced the Russo’s salary, prompting a constructive dismissal claim. Russo had been a long-term employee of the Defendant and had worked with the Defendant for 37 years, starting as a shipping clerk and eventually becoming the warehouse manager. His role involved managing logistics, overseeing staff, and inventory control. He also earned a substantial compensation package of approximately $114,000.00 per annum inclusive of bonuses.
However, in 2009, due to severe financial difficulties, the Defendant started implementing cost-cutting measures, which included a 10% pay cut for all employees and the elimination of their pension plans. Russo, along with a few other employees, suffered additional pay reductions and Russo’s salary was reduced to $60,000.00 with his bonuses eliminated.
Russo subsequently retained counsel who informed him this pay cut amounted to constructive dismissal and that this was a unilateral change, which Russo, in no way, agreed to. Notwithstanding, Russo continued to work for the Defendant under the reduced pay, arguing that his continued employment was part of his duty to mitigate his damages.
The Ontario Superior Court ultimately ruled in favour of Russo, noting that salary reductions without consent were a clear violation of the employment contract. Justice Gray emphasized that employees have the right to dispute changes to their employment while continuing to work. Russo was awarded 22 months’ notice at his original salary. This case reinforced the importance of clear communication between employer and employee and highlighted the principle that financial stability is a fundamental term of employment and the employer’s unilateral change in the payment structure can most definitely amount to constructive dismissal.
Practical Implications
When employees face significant changes in their job roles or work conditions, it is crucial for them to carefully document these changes and seek legal advice promptly. At the same time, employers must prioritize open communication and ensure that any modifications to the employment terms are discussed and mutually agreed upon. Failure to do as such may result in costly litigation and reputational damage.
As constructive dismissal claims hinge on the specific circumstances of each case, they require a thorough analysis of the employment relationship and the employer’s actions. Familiarizing oneself with relevant legal principles and recent case rulings can empower both employees and employers to navigate this complex area of employment law more effectively.