Lawyer explains how ‘overdrafting’ policies can land employers in hot water
A recent decision by the Supreme Court of British Columbia serves as a reminder for Canadian employers: not following their own policies when putting employees on leave can have dire – and costly – consequences.
The case, Day v. Tahltan Central Government, 2025 BCSC 1363, involved the elected president of a governing board who was placed on paid administrative leave for four months while a series of complaints were investigated; the board’s own policy manual set out a detailed process for handling such complaints, but it failed to follow those steps.
As a result, the court found that the leave was a breach of the individual’s employment agreement, amounting to constructive dismissal and entitling him to over $320,000 in damages.
As Sebastian Chern, employment lawyer with Ascent Employment Lawyers in Vancouver, explains, the individual was “left in limbo” for too long, one of several mistakes commonly made by employers that can potentially lead to constructive dismissal claims.
“The leave itself was found to be a breach or a unilateral change of his employment agreement,” Chern says.
“By not following their procedures, it created a breach which the court found to be substantial and fundamental to the employment agreement, which resulted in ultimately the constructive dismissal and the damages that flowed from that.”
Dangers of 'overdrafting' administrative leave policies
According to Chern, the TCG case highlights a common pitfall for employers: creating policies with multiple layers of safeguards and steps built in to protect both the organization and the employee: “I think a mistake that employers make is overdrafting, and not considering the potential consequences of overdrafting.”
Multiple steps can wind up being too many, he says, in cases where an employer wants to put an employee on leave immediately but find that they can’t; if steps are skipped or not followed precisely, they can become a liability.
“When you're drafting the policy, you may think, ‘Oh, these all sound great and are going to be beneficial, not only for us as the employer, but also … creating safeguards for the employee,’” says Chern.
“In this case, they required that the complaint go through several stages of assessment and approval before essentially, they could start the leave. But they didn't follow that process. So where you're creating these multiple steps, procedures and essentially obstacles for you to overcome before you can implement the leave, you're binding yourself to that.”
The length of an administrative leave is a critical factor, Chern explains. The longer an employee is left in limbo, the greater the risk that a court will find the leave to be unreasonable or even a constructive dismissal.
“Best practice is shorter, the better,” he says.
“The longer a leave goes on, and the less certainty there is with the leave, the more likely it is that, legally and practically, a constructive dismissal might be a legal ground.”
Balancing operational needs and employee rights
Employers must strike a balance between operational needs and the rights of employees; as Chern points out, placing an employee on leave – whether paid or unpaid and regardless of cause – can have a significant impact on their reputation and livelihood.
“Putting somebody on a leave, whether that's with or without pay, is pretty embarrassing for that individual,” he explains.
“What this case shows us is yes, overdrafting can be a bad thing, and so you really have to make sure you're striking that balance, and it's going to depend on your own operational needs and abilities.”
He points to safety-sensitive workplaces as an example of where a clear, streamlined administrative leave policy is essential.
“If you have a very clear drug and alcohol policy that says that if you test positive after a workplace incident, and you submit yourself to an assessment, and they find that there's potentially a disability there, then you can be held out of work on an administrative leave,” he says.
“That's a very clear step-by-step process that doesn't have too many safeguards, let's say, put in place.”
Minimizing risk by justifying administrative leave
To avoid risk of possible constructive dismissal claims, Chern advises that before placing an employee on leave, employers should consider any other alternatives that could allow the employee to stay on the payroll. If not, an administrative leave may be appropriate, but only if justified and implemented carefully.
“As the employer, is there a position where we can put this person, where they could still perform the role, but it won't be disruptive to the investigation? If the answer is no, then you may be looking at a situation where an administrative leave is appropriate,” Chern says.
When putting employees on leave, he adds, employers and HR should always start by referring back to their current policies, ensuring that what they're considering isn’t already governed, and if it is, they should follow it to the letter.
“If you don't have something like that, then I would say, seek out some legal advice, and find a lawyer to determine whether or not an administrative leave is going to be appropriate," he says.
"Because you could be shooting yourself in the foot and presenting an employee with an opportunity to allege constructive dismissal, which, as we see here, can have very disastrous consequences for an employer.”
