Constructive dismissal: A primer

Constructive dismissal can come about from a number of factors which should be avoided by employers

Deconstructing constructive dismissal

Employers have to be careful when it comes to introducing change in the workplace. They have the right to make changes as they see fit, whether it’s for financial reasons or to improve the workplace environment. However, it’s not as easy as simply making the change if it involves a significant alteration to an employee’s job.

The type of circumstances above is one area where employers may be caught off guard if they end up faced with a constructive dismissal suit. There are also other things that can lead to constructive dismissal that employers may not take too seriously — until they’re faced with that suit.

Employment lawyer Lisa Goodfellow provides a bit of a primer for employers who may be a little uncertain in an area of employment law that is often open to interpretation — by employers, employees and, most importantly, the courts.

Determining what will be a constructive dismissal can feel like a bit of a guessing game. When will a court find an employee entitled to quit, yet be paid the same damages as if he had been terminated without cause? This primer on constructive dismissal is intended to simplify this fuzzy area of the law.

Constructive dismissal is a doctrine developed by the courts to compensate employees whom were not terminated outright by their employers, but were mistreated in an attempt to make them quit. Employers’ conduct began to be scrutinized more to see whether such resignations were truly voluntary and courts found some cases where the employer had breached the contract, or showed such flagrant disregard for the terms of the contract that it had “constructively terminated” the employee.

The doctrine of constructive dismissal has been honed and shaped over the decades and is now defined as a unilateral and fundamental change to a material term or condition of employment.

Significant change imposed without consent of employee

“Unilateral” means the change was imposed on the employee by the employer. If an employee consents to a change, or condones it by continuing to work for a substantial period of time after the change is made, or if a change is negotiated between the two sides, there will be no constructive dismissal. But even this first and simplest element of the doctrine has led to much litigation. How long can an employee continue to work before he is said to have condoned the change? Depending on the nature of the change, the courts have generally found that an employee is entitled to a trial period in order to determine whether the change is palatable or not. One to three months has been found to be fair, but longer periods, certainly anything longer than a year, will amount to an acceptance and the employee will not be entitled to damages.

“Fundamental” means the change must be a significant one. Minor changes will not amount to constructive dismissal. Where changes are made to compensation, for example, any reduction of less than 10 percent has generally not met the threshold for constructive dismissal.

What will amount to a “material term or condition of employment” has also been extensively litigated. The most common terms considered material by the courts include salary, title, responsibilities, bonus and commission plans. Less obvious conditions that have sometimes been found material, either in isolation or as part of a group of lesser changes include benefits plans, office and secretarial support, and reporting relationships.

The most common changes that have been found to constitute constructive dismissal include:

•Demotions
•Reductions of more than 10 percent of total compensation
•Geographic transfers which would require an employee to move
•Significant negative changes to day-to-day working conditions.

Every case is fact-specific and will be decided on its particular circumstances, including the history and expectations of both the employer and employee. Although early case law required some evidence the employer actually intended to pressure the employee to quit, this is no longer the case. Also, the subjective view of the employee is no longer a factor.

Now, the courts will look at the conduct of the employer and weigh the significance of any changes to determine whether a reasonable person in the circumstances would consider the employer to have repudiated the contract.

In recent years, as many employers have resorted to tough measures in order to survive difficult economic times, the courts have allowed greater flexibility to employers to make changes in the workplace, expecting employees to be more flexible as well. This is a welcome trend for employers.

Poor treatment now a factor

A relatively new category of constructive dismissal has developed over the past 10 years or more, one concerned not with a change to a term or condition of employment, but with the treatment of the employee and the workplace atmosphere. The courts have held that it is a fundamental implied term of every contract of employment that the employer will treat the employee with civility, decency, respect and dignity. Thus, where there is ill treatment of an employee, it can amount to a breach of this term of the contract and a constructive dismissal. Not every instance of poor treatment will amount to a constructive dismissal, but serious and ongoing mistreatment of an employee by a supervisor can.

Harassment contrary to human rights legislation has been held to amount to constructive dismissal in some cases, depending on the employer’s response to such misconduct. If it acts quickly to stop and redress any abuse, or if the abusive party apologizes for the misconduct, the courts may find the workplace is not poisoned and there is no constructive dismissal by the employer.

A final issue in circumstances of potential constructive dismissal is whether the employee must remain in his position while he looks for another job in order to fulfil his duty to mitigate his damages. If the situation is intolerable for the employee, on an objective basis, he will be entitled to quit and claim damages. If it is not humiliating or demeaning in any way, the courts may find that the employee should stay to mitigate. This question sometimes feels like a re-examination of whether there has been a constructive dismissal in the first instance.

Tips for employers

How can employers protect themselves against constructive dismissal claims?

•Draft contracts and policies to allow maximum flexibility for change
•Ask employees for their input when restructuring or cost cutting to get their buy-in
•Keep changes minor, particularly to base compensation (less than 10 per cent of total)
•Try to get employee consent to changes
•If no consent, give advance written notice prior to imposing any significant changes
•Ensure a respectful workplace through training, education and good management
•Respond promptly to complaints of harassment or bullying, and take action to address problems as soon as possible.

Lisa S. Goodfellow practices in the National Labour/Employment Group at Fraser Milner Casgrain LLP in Toronto. She can be reached at (416) 863-4726 or lisa.goodfellow@fmc-law.com.

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Notice of change not always enough

It’s generally considered that a fundamental change to an employee’s condition of employment without an employee’s consent is only possible if reasonable notice is given, much as it would be with dismissal.However, in the case of Wronko v. Western Inventory Service Ltd., simply giving notice wasn’t enough.

Toronto-based Western Inventory employed Darrell Wronko under a contract entitling him to two years’ salary upon termination. In 2002, Western wanted to change Wronko’s termination notice period to a maximum of 30 weeks. Wronko refused to agree to the change and Western notified him the new term would come into effect in two years.

In 2004, Western amended Wronko’s employment contract with the new termination provision. Wronko refused to accept it and sued for wrongful dismissal.

The Ontario Superior Court of Justice dismissed Wronko’s claim, saying Western gave him reasonable notice of the change and there was no constructive dismissal. It found Wronko terminated the employment relationship.

The Ontario Court of Appeal agreed there was no constructive dismissal, but found it was Western who terminated the relationship. It found that because Wronko had two years’ notice, the change didn’t immediately impact him. However, Western should have told Wronko the current contract was being terminated and he could be rehired on a new one. Since it didn’t and allowed him to continue working under the old contract for two years, his old contract remained in effect and he was entitled to the notice of termination under it. For more on this case, go to the Advanced Search page on www.employmentlawtoday.com and search for article #1670, #1609 and #1213.

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