Constructive dismissal: Should I stay or should I go?

“Should I stay or should I go?” may be the question an employee asks himself when he faces a difficult working environment and considers filing for constructive dismissal.

Constructive dismissal is when an employer indirectly encourages an employee to resign by failing to comply with the employment contract or one-sidedly changing the employment terms without the employee’s prior consent.

It is distinguished from an ordinary resignation because it is the employer that initiates changes to the terms and conditions of the employment contract.

Put bluntly, it is when the employer makes the working conditions completely intolerable for the employee with the intention of “swaying” the employee to resign instead of outright firing him.

Once the employer has changed the terms and conditions of the employment contract, the employee must file for constructive dismissal within a 90-day time period from when the changes took place for the case to be admissible in the courts. The extent of an employer’s failure to meet its contractual obligations and time taken to deliberate also affect the likelihood the employee will win a constructive dismissal case.

To put this in context, common examples of changes to an employee’s working conditions include:

• Reduction in the employee’s powers or duties that involve a significant loss of the employee’s prestige and status as a result of reorganization in reporting arrangements.
• Threats of dismissal or demotion and unfair suspensions.
• Significant reduction in working hours, salary or employee benefits.

For the past two years, the Supreme Court of Canada has seen a notable increase in constructive dismissal cases. A recent example includes the case of Potter vs. New Brunswick (Legal Aid Services Commission), which began in 2006 when David Potter was appointed as the Executive Director of New Brunswick Legal Aid Services Commission.

During his term, Potter had a number of complaints made against him by staff and his relationship with the commission’s board of directors deteriorated. At this point, both parties began discussing a mutually acceptable way of bringing his contract to an end.

In January 2010, Potter went on sick leave and was asked not to return until further direction from the commission. His salary and benefits were continued. Two months later, he filed an action against the commission, claiming he had been “constructively dismissed,” meaning the commission had effectively changed the employment contract without providing reasonable notice.

The commission said claiming constructive dismissal was incorrect and essentially meant Potter had resigned. The commission subsequently stopped his salary and benefits. At this point, the case went to court.

The court found Potter was not constructively dismissed and, by commencing legal action, Potter had effectively resigned. In October 2013, the Supreme Court of Canada granted a leave of appeal for the case — it has yet to hand down its final decision.

The Potter case demonstrates that employers must exercise caution when dismissing employees. There can be a fine line between constructive dismissal and an employee’s resignation.

A similar constructive dismissal case that resulted from poor relations among staff is Danielisz vs. Hercules Forwarding Inc. Barbara Danielisz, a customs broker and departmental manager at Hercules, a freight services company in Toronto, complained she was subject to a poisonous working atmosphere.

She claimed her superior undermined her authority by not allowing her to discipline her staff and her colleagues “ganged up” on her. Conversely, Danielisz’s colleagues claimed she was not a team player and made derogatory and verbally abusive comments to others.

Hercules held a meeting in attempt to resolve the situation but was unsuccessful. Danielisz went on stress leave and Hercules said it expected her to return to work and perform her duties. Danielisz filed a legal claim for compensation for stress, depression and constructive dismissal, which Hercules took as her resignation.

The British Columbia Supreme Court found there weren’t grounds for constructive dismissal and Danielisz had helped to create a poisonous working atmosphere as much as she’d suffered from it. The court said if Danielisz had done more to mitigate the issue, she wouldn’t have had to make the claim — which was dismissed and not granted a leave of appeal.

Comparable to Danielisz’s case, Yohann Johnson, an employee of automaker General Motors (GM) in Oshawa, Ont., filed for constructive dismissal (General Motors of Canada Ltd. v. Johnson) when he attempted to return to work after being away on sick leave for two years from his job as a result of what he claimed was the poisonous working atmosphere and racism.

Upon his return, Johnson was offered two positions in two different departments. However, he did not accept either position, stating he didn’t want to come in contact with the racist employee. GM interpreted Johnson’s rejection of the positions as his resignation.

Johnson took the case to the Ontario Court of Appeal, where he was initially awarded $90,000. However, the same court later overturned the decision, stating there was no conclusive evidence of workplace racism to prove constructive dismissal.

It didn’t agree there was workplace bullying as General Motors had made notable efforts to retain Johnson by offering him two positions, both of which he refused. Furthermore, the court stated that standalone incidences are not enough to prove the existence of a poisonous working atmosphere and that there needs to be a consistent pattern of misconduct to be considered sufficient evidence. Johnson’s case was dismissed.

Denial of expected bonuses can lead to constructive dismissal

In addition to the above cases, denial of an annual bonus can also be construed as constructive dismissal, depending on whether the bonus is considered to be discretionary or part of a salary package, as evidenced in Piron vs. Dominion Masonry Ltd. James Piron was a long-serving employee at Dominion Masonry, a commercial masonry company in Burnaby, B.C., when his employment ended in 2011 due to a disagreement over his bonus entitlements.

That year, Dominion Masonry stated it was experiencing financial hardship because of the economic downturn and informed Piron it couldn’t pay his annual bonus. Piron argued this was unacceptable, as his bonus was part of his employment agreement. Dominion Masonry disagreed, saying his bonus was discretionary. Piron took the case to the B.C. Court of Appeal, where it was unanimously agreed he should receive his bonuses. He was awarded $20,000 in addition to his compensation package, but the court felt a reduction was in order.

These cases demonstrate the need for substantial evidence and multiple incidents of misconduct for an employee to win a constructive dismissal case. Employer attempts to resolve such workplace issues go a long way in the eyes of the court, as evidenced in both Danielisz and Johnson.

So, the answer to the question an employee may ask when considering constructive dismissal — “Should I stay or should I go?” — is: “it depends on the situation.”

Constructive dismissal is discretionary and is largely judged on a case-by-case basis, often requiring additional speculation and legal assistance before a conclusion is reached. Should an employee wish to file for constructive dismissal, he must present hard and consistent evidence to win his case.

For more information see:

• Potter vs. New Brunswick (Legal Aid Services Commission), 2013 CarswellNB 196 (N.B. C.A.).
• Danielisz vs. Hercules Forwarding Inc., 2012 CarswellBC 2321 (B.C. S.C.).
• General Motors of Canada Ltd. v. Johnson, 2013 CarswellOnt 10496 (Ont. C.A.).
• Piron vs. Dominion Masonry Ltd., 2013 CarswellBC 1028 (B.C. C.A.).