Supreme Court clarifies constructive dismissal

Top court looks at suspension with pay
By Liz Bernier
|Canadian HR Reporter|Last Updated: 04/17/2015

Constructive dismissal can be a tricky area to begin with, but it can be complicated even further if the employee in question is on suspension with pay. That was the case in a recent Supreme Court of Canada decision, Potter v. New Brunswick Legal Aid Services Commission. 


The Supreme Court unanimously decided David Potter had been constructively dismissed from his job as executive director after he was put on indefinite — but paid — suspension after nearing the end of a sick leave. He was told he “ought not” to return to work but was given no reason.


The decision clarifies some uncertainty around constructive dismissal and the legal test to determine if a situation qualifies, said Carl Cunningham, a partner at Bennett Jones in Toronto. 


“This is a clarification rather than a material shift in the law,” he said. “When you read the facts in this case, it’s quite a lengthy decision… to me the surprising thing is not the Supreme Court’s decision but rather the earlier decisions that there wasn’t a finding that there’d been a constructive dismissal.”


The case has a somewhat limited application but it provides valuable guidance for employers, said Jennifer Fantini, a partner at Borden Ladner Gervais in Toronto.


“In terms of what the Supreme Court of Canada is telling us, it’s that a suspension with pay can amount to a constructive dismissal if it’s not authorized by the employment contract either expressly or if you can’t rely on an implied term.”


The decision may leave some employers uncertain of when a paid suspension is legally justifiable, and when it can be considered constructive dismissal. 


With constructive dismissal, the courts use a couple different legal tests, said Cunningham — one of which centres on whether the employer has made a unilateral change to the terms of employment, which in this case was suspending the employee.  


“If you’re going to make that change to an essential term (of employment) and not have it be a constructive dismissal, you either want an express right or an implied right (to do so),” he said. 


If the right to suspend an employee with pay is expressly stated in an employment agreement, there should be no issue, said Fantini — the more complicated issue is whether there is the implied right to suspend with pay.


“The court has said that (the suspension) needs to be reasonable and justified. So they gave sort of a list of factors that might be considered, such as the duration of the suspension, whether it was implemented in good faith on the part of the employer — which includes giving the employee reasons for the suspension — and demonstrating that there’s a legitimate business purpose for the suspension,” she said. 


The need for the employer to demonstrate a legitimate business reason for the suspension represents a significant shift, said Joshua Concessao, an associate at Hicks Morley in Toronto. 


“Typically, in a constructive dismissal, the employee bears the burden of proof throughout, just as an employer bears the burden of proof in a cause dismissal,” he said, adding this decision is a departure from that.


“The onus then shifts to the employer to show that… the indefinite suspension with pay was done for legitimate business reasons. And that’s quite significant.”


Duty to provide work

The case also presents some interesting clarification around an employer’s duty to provide work, said Terri Higdon, an associate at Cox & Palmer in St. John’s. 


“Before, the common law said that employers don’t have a duty to give you work, so that’s what the employer argued in this particular case,” she said. 


The traditional position in common law was that if you’re not going to terminate an employee, you do have an obligation to retain him in his employment but you don’t have an obligation to supply work, said Concessao. 


“There were certain traditional categories of exceptions to that rule. So, for example, where your remuneration was commission-based... there, obviously, a case could be made that ‘I have to perform my job to even get paid.’ And, similarly, if you’re a public persona like a radio personality or an actor, the performance of your job is tied to… the value that your employment provides.”

A further category that was traditionally considered an exception is when some sort of reputational benefit is derived from the job — for example, a CEO who is put in the position of having to explain a resumé gap, said Concessao. 


“What the court does (in this decision) is say, ‘No, that’s not going to be the case anymore… every employee, regardless of status, derives an intrinsic worth from work itself.’ So now the rule is you have to provide work, and you can’t place someone on an indefinite suspension with pay, unless you can show a legitimate business reason.”


Importance of good faith

Another key consideration was the issue of bad faith, said Cunningham. The court found New Brunswick Legal Aid Services did not act in good faith in its dealings with Potter, particularly when it came to its refusal to communicate the reason for his suspension. 


“Based on the reasoning here, they should be communicating that reason to the employee. The employer shouldn’t be merely just saying, ‘Stay home, we’ll pay you, we’ll call you if we need you.’ There is some risk to that because what’s happening in that scenario is that the employer may have had legitimate business reasons, but they haven’t taken that other part which is be transparent, communicate to the employee the reasons for the change,” he said. 


That lack of transparency and communication could be seen as bad faith, said Higdon. 


“If you have an employee and you’re telling them not to come to work but you’re not telling them why, that’s bad faith,” she said. “You can’t just not have that in a contract and just expect to have them off for no reason and them not understanding why.”


The employer was also looking to terminate Potter for cause while he was on suspension, said Cunningham. 


“That would be an example of something where, in the court’s view, the employer was not acting honestly and fairly to the employee,” he said. “What the court is telling us here is you’re going to be in a better position if you’re communicating those reasons and dealing honestly and fairly with the employee.”


Next steps?

One takeaway for employers is to consider amending employment agreements to include an express term permitting them to suspend with pay,  said Fantini. 


“Then you’re not having to justify whether there’s an implied term — you’ve got it expressly in your employment agreements,” she said. “Most employers wouldn’t have an employment agreement that authorizes them to suspend an employee with pay in certain circumstances.”


Also, the court said not all administrative suspensions will be grounds for constructive dismissal. 


“They were clear that the principles would not apply in certain cases — they said not in the case of layoffs for economic reasons, administrative suspensions for reasons unrelated to the employee’s conduct or disciplinary suspensions,” said Fantini.


But one question that remains is if this decision would apply to employees who are suspended for conduct pending a workplace investigation, she said. 


“I think what the Supreme Court of Canada is saying is that every case is fact-specific, but you’re going to be in better standing as an employer if the suspension is for a shorter duration, it’s for good faith, legitimate business reasons and it’s been communicated to the employee.”  

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