What you need to know about constructive dismissal

Employers should be aware of which changes can safely be made to an employee's contract

What you need to know about constructive dismissal

Organizations are constantly changing and adjusting employee job roles and tasks to cater to the demands of the economy and industry trends. Sometimes to keep ahead and ensure business continuity, employers need to make major changes to their organization and people’s roles. This can lead to constructive dismissals.

As a result, employers should be aware of which changes can safely be made to an employee’s contract and which ones can lead to them leaving the organization.

Constructive dismissal

Constructive dismissals are covered under part III of the Canada Labour Code (along with provincial employment standards). When an employer makes substantial changes to the terms and conditions of an employee’s employment contract, whether explicitly or implicitly, without the employee’s consent, the employee may resign from the company and claim constructive dismissal.

The employer has not directly fired the employee but has committed a serious breach of contract by changing vital terms and conditions to the point where an employee feels they have no choice but to resign. Examples of these changes could be a reduction in wages – usually more than 10 per cent – demotions, temporary layoffs, and other significant changes in schedule or duties.

During this situation, an employee can either accept and continue working under the new terms or they may treat their employment as having been terminated, entitling the employee to a notice from the employer as if they have been terminated and not resigned. The employer will then be required to provide the employee with severance pay.

Read more: Never say never: $1.3 million awarded for constructive dismissal

Employer actions that constitute constructive dismissal

To be considered a constructive dismissal, the change to the term of employment should be significant and affect the core of the employment contract. Minor changes will not trigger a constructive dismissal.

Some common, significant changes include:

  1. Change in powers and duties

Changes to the duties and responsibilities of an employee is the most common cause of constructive dismissal. A decrease in the employee’s duties or a removal of a primary area of responsibility is considered a dismissal in disguise, whether or not they are accompanied by changes in salary or job title.

A significant loss of prestige or status is usually seen during this change.

  1. Reduced hours, salary, status or benefits

It is considered a constructive dismissal if there is a drastic change in an employee’s work hours, such as reducing or adding more work hours or shifting their work schedule to a completely different time.

Requiring an employee to work in a different geographic location can be considered as constructive dismissal. However, there is no constructive dismissal if the employee moved to another location in the same city or knew that potential relocation was part of the job.

Significant withdrawal of salary and benefits, such as a company car needed for essential work duties and changing the employment status from full-time employee to independent contractor, can also be considered as constructive dismissal.

  1. Threats and suspensions

Threats of dismissal or demotion in some cases may constitute a constructive dismissal. For example, a mere encouragement to resign is not sufficient to cause a dismissal in disguise. But an unfair suspension or reduction in salary can create an intolerable situation for an employee, leading to a valid constructive dismissal.

  1. Unfair treatment and working conditions

Constructive dismissal can also happen when an employer’s conduct shows an intention that is not bound by the employment contract. For example, when an employer has allowed or initiated workplace bullying and harassment to the point where the employee can no longer work and fulfill their responsibilities safely and adequately.

Other examples of this are when an employer locks an employee out of a building, removes their access to essential office software, or abuses employees verbally in the workplace.

Wrongful dismissal versus constructive dismissal versus unjust dismissal

Wrongful dismissal, constructive dismissal, and unjust dismissal are usually used interchangeably, but they have distinct meanings. Wrongful dismissal is used to describe a situation where an employer has explicitly terminated – with or without cause – the employment of an employer without providing the employee their entitlements under the law, such as severance pay, reasonable notice, or pay in lieu.

Meanwhile, unjust dismissal refers to a recourse in the Canada Labour Code that is available to employees of federally regulated offices who have completed at least 12 consecutive months of employment who believe their dismissal was unjustified. Employees who fall under this qualification have additional protection from unjust dismissal by their employer as long as:

  • the employee can file a complaint alleging unjust dismissal at a Labour Program office within 90 days from the dismissal date
  • the employee is not in a managerial position
  • a collective agreement does not cover the employee
  • the reason for the dismissal does not stem from economic considerations such as lack of work or discontinuance of a function. 

What happens once constructive dismissal is declared?

When an employee believes that they have been constructively dismissed, they have the option to choose one of the options listed below:

  1. Accept the changes

The employee may accept the changes, however significant they are. The employee may have implicitly or reluctantly accepted the change and continues working under the changed terms.

  1. Remain employed but reject the changes

The employee can choose to remain employed with the company but notifies the employer that they reject the changes to the employment contract. If the employer does not respond to the rejection, the employer will be found to have implicitly accepted the employee’s position.

The employer may respond by providing the employee with a formal working notice, ending the employee’s employment contract. The employer can then offer a new employment contract with the adjusted terms and conditions. However, if the employer fails to offer a proper working notice, the employee is entitled to insist on keeping the original terms of the employment contract.

  1. Reject the changes

The employee may choose to quit their employment and claim they have been constructively dismissed. The employee must quit their job within a reasonable period, or else they are considered to have implicitly accepted the change. The length of reasonable time depends on the type of change that the employer made to the employment contract. For example, if compensation has been dramatically reduced, the employee may be required to make  a decision quickly. Meanwhile, an employee who was required to move to a different geographical location for work may be given a more extended period to decide.

A court will review the details of the case and compare the original and new terms of the employee’s employment contract. In addition, the court will look into whether a reasonable third person in the same situation as the employee would consider the change significant and whether the employer’s reasons for making the change are valid.

Read more: COVID-19-related temporary layoff a constructive dismissal: Ontario court

How to handle constructive dismissal

Employers can best minimize the risk of constructive dismissal by creating a strategy to implement change in employment and the workplace. This will reduce legal costs and the potential for significant dismissal.

Employers should provide advanced notice for when changes will take place. If possible, the amount of notice should be equivalent to the notice period the employee is entitled to for a working notice. Offering a written document that employees sign which explains all the changes that employers will make can help when striking a bargain and serve as proof of the agreement between employers and employees.

Employers should offer alternative compensation such as additional days off, stock options, or a company car if notice cannot be provided. This can make employees feel less worried about the changes and still feel cared for by the company.

Offering a new employment contract to the employee also helps when significant changes are being made. Employers should review the best employment package and benefits to provide to the employee and evaluate the risks if the employee does not accept the new position.

Restructuring and changes in the workplace are inevitable, but employers should always remain transparent and clear with their intentions and actions that involve the company and its members. Employees appreciate being part of the conversation and may be more understanding of the changes if they’re given a chance to be a part of the company’s goals.

Latest stories