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Deconstructing constructive dismissal

Every case is fact-specific but the Supreme Court of Canada recently set out the legal test

By Stuart Rudner

What you do if your employer suddenly slashes your compensation package by 40 per cent?

Or if you are unexpectedly advised that from now on, you will be reporting to the person you hired and trained last year?

Or you will now be required to be in the office every day, rather than working from home, and the office is moving from Markham to Hamilton? 

What are your rights, and do you have any right to refuse? While it will depend on the circumstances, you probably do. 

All of the examples above can constitute a constructive dismissal. Simply put, a constructive dismissal occurs when one party to the employment agreement (almost always the employer) unilaterally makes a substantial change to a fundamental term of the employment agreement. 

Of course, not every change will constitute a constructive dismissal. First of all, it must be a substantial change. There are no absolute rules with respect to what is “substantialas there are so many different contexts in which this must be considered.

When it comes to compensation, it is recognized that a nominal change of less than five or 10 per cent may not be a constructive dismissal, but once the change is greater than 15 per cent, it likely is. Of course, every case will have to be assessed based on its own particular circumstances. 

Recently, the Supreme Court of Canada had the opportunity to discuss the concept of constructive dismissal and set out the legal test, which was defined as follows:

•“At the first step of the analysis, the court must determine objectively whether a breach has occurred. To do so, it must ascertain whether the employer has unilaterally changed the contract. If an express or an implied term gives the employer the authority to make the change, or if the employee consents to or acquiesces in it, the change is not a unilateral act and therefore will not constitute a breach. If so, it does not amount to constructive dismissal. Moreover, to qualify as a breach, the change must be detrimental to the employee.”

•“Once it has been objectively established that a breach has occurred, the court must turn to the second step of the analysis and ask whether, “at the time the (breach occurred), 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” (Farber, at para. 26). A breach that is minor in that it could not be perceived as having substantially changed an essential term of the contract does not amount to constructive dismissal.”

With respect to what is fundamental, that will also vary depending upon the particular case. Generally speaking, being moved from one desk to another will not touch upon a fundamental term of the contract. However, if it is clear that one location has a greater degree of prestige within the hierarchy of the organization, and the change will negatively impact you and your perceived role, then it may well be a constructive dismissal. 

Every case is fact specific, but the point is that in order for a person to have a right to complain about the change, it must be a significant change and it must impact an important issue. 

In addition, a change will only constitute a constructive dismissal if the employer did not have the right to impose it. In some cases, the employment contract will give the company the explicit right to do so. In others, there will be an implied right based upon the circumstances. It is only where that right does not exist that the individual may have a legitimate right to object. 

Similarly, if the employee does not object to the changes, and either explicitly or implicitly accepts them, then she will be precluded from taking action in the future. Our firm is often consulted by individuals who find themselves in such circumstances, and we advise them it is not unreasonable to take a brief period of time in order to assess the changes, if it is not clear what the impact will be from the outset.

However, waiting too long to raise your concern can lead to a finding that you accepted the change. Every now and then, we are consulted by someone who raises a concern about a change that was made years prior, and we advise them they will not have a legal claim on that basis. 

Employers often make the mistake of assuming that compensation is the only critical factor, and as long as they do not change the compensation package, everything else is fair game. That is entirely untrue. You cannot demote someone to a lower position and dramatically change their job, while defending the action by proclaiming you maintained his compensation package. 

From the employee's perspective, constructive dismissal situations are particularly challenging because he still has a job, and the law of mitigation may require that he stay there. 

When an individual is dismissed outright, the situation is simple in the sense that she knows she has been dismissed, and while she may have a right to pursue compensation, she also have a duty to mitigate her damages by making reasonable efforts to look for new work. 

In the case of someone who has been constructively dismissed, he still has a job. In most cases, the employer will deny that a constructive dismissal has taken place. In those circumstances, the individual will have a difficult decision to make, as taking an aggressive stance may be the logical course of action but is also likely to result in the termination of his employment. Depending upon the circumstances, this may be a good or a bad thing, and the individual will have to assess this. 

A savvy employer will deny any allegation of constructive dismissal and also take the position that even if there was a constructive dismissal, the employee has a duty to mitigate her damages by remaining in the position. This will often be accompanied by a threat that if the employee resigns, the employer will not only deny there was a constructive dismissal, but also allege the employee failed to remain in the position when it was perfectly reasonable for her to do so.

This can have significant risk for the employee, as it is possible a court might disagree that there was a constructive dismissal or agree that the employee was constructively dismissed but find that a reasonable person would have stayed in the job until she found something else. 

Dealing with a potential constructive dismissal can be quite complicated and individuals are wise to obtain legal advice before taking any action that might jeopardize their rights going forward. At the same time, employers must understand that their rights are not unlimited, and just as they cannot unilaterally change other contractual agreements, such as the deal they have with their supplier, they cannot unilaterally change the terms of an employment contract. Any potential change should be reviewed with an employment lawyer before it is implemented. For both parties, spending time on a constructive dismissal claim may be the least constructive use of their time. 

© Copyright Canadian HR Reporter, Thomson Reuters Canada Limited. All rights reserved.

Stuart Rudner

Stuart Rudner is a founding partner of Rudner MacDonald LLP in Toronto. Follow him on Twitter @CanadianHRLaw. He can be reached at srudner@rudnermacdonald.com.
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