What constitutes constructive dismissal? (Toughest HR question)

No hard-and-fast rules but be wary of demotions, forced relocations
By Brian Kreissl
|Canadian HR Reporter|Last Updated: 06/16/2010

Question: What changes are likely to amount to constructive dismissal? As an employer, how can we avoid allegations of constructive dismissal?

Answer: Constructive dismissal is a type of wrongful dismissal that applies in a non-union context when an employer makes a unilateral change to a fundamental term of an employee’s contract of employment (whether the contract is written, verbal or a combination of both).

Every case is different and must be decided based on the facts, however, there are a few things to remember:

Not every change will be considered fundamental: A minor change to the menu of options available under a flexible benefits plan is unlikely to be considered fundamental.

The change has to be unilateral to be constructive dismissal: If an employee freely agrees to the change, there is no constructive dismissal, especially if additional “consideration” (a legal term meaning something of value) is provided in exchange. Consideration does not have to be cash, nor does it have to represent a large amount.

Examples of constructive dismissal: Some of the changes that have resulted in constructive dismissal in the past include demotions, changes in the scope of employees’ duties, salary or wage reductions, cuts in hours, major changes to employee benefits packages, commissions or bonuses, changes to reporting relationships, significant changes in titles, forced relocations, temporary layoffs and extremely poisoned work environments. However, constructive dismissal was not found to exist in every instance where some of these changes were made.

What employers can do

There are several things employers can do to protect themselves from constructive dismissal claims.

Use written, signed contracts: Have new employees sign written employment contracts that specifically authorize the employer to make changes to the duties of the position, reporting relationships, benefits packages and bonuses and authorize the employer to transfer the employee to another location.

Get employee to agree to change: Obtain the employee’s agreement whenever a fundamental change is made to her position. Have this formally documented in a written contract, signed by the employee, and ensure she is provided with some type of additional remuneration for agreeing to the change.

Provide plenty of notice: The length of notice would be the same as the amount of “reasonable notice” an employee would be entitled to on termination. However, simply providing advance notice may not be enough if an employee objects to the changes. In that case, the employee should then be provided with written notice of termination effective on the date the changes are due to take place, along with a revised employment contract effective on that date so she can decide whether to stay on.

Demoting a manager

Question: How do we go about demoting a manager without this constituting constructive dismissal?

Answer: Basically, you can’t — unless you provide lengthy advance notice of the change (see above) or the manager agrees to the demotion. However, in the case of a disciplinary demotion, if enough evidence exists to support termination for cause, the manager may just agree to take a demotion rather than be terminated for cause without notice or pay in lieu of notice. This has to be handled very carefully and it’s advisable to obtain the advice of an employment lawyer under such circumstances.

Relocating an employee

Question: We are looking to relocate one of our employees. How far away can we move the person before a court is likely to consider this constructive dismissal?

Answer: In the absence of an employment contract with a mobility clause authorizing the employer to relocate the employee, the individual facts would be material.

These include the nature and level of the position, the implied terms of the individual’s employment contract and the customs and practices of the industry in question. Also, if an employer moved its offices across the city, that is unlikely to amount to constructive dismissal. On the other hand, moving someone from Toronto to Vancouver would likely amount to constructive dismissal.

Brian Kreissl is managing editor of Consult Carswell, a Canadian HR work solution that delivers best practices, legal compliance, news, articles and a suite of ready-to-use tools in one easy-to-use online service. For more information, visit www.consultcarswell.com. He can be reached at brian.kreissl@thomsonreuters.com.

Add Comment

  • *
  • *
  • *
  • *