What is constructive dismissal?

Employers can only go so far in restructuring a position before they trigger a constructive dismissal

Stuart Rudner


By Stuart Rudner

As organizations evolve, merge, restructure, downsize, right-size and otherwise change, they often find themselves changing employees' duties in order to be more efficiently organized. Sometimes, the changes include revisions to title and compensation. However, employers can only go so far before they trigger a constructive dismissal.

I am often consulted by clients who want to make substantial changes to an employee's terms of employment. Sometimes, they want to demote the employee to a lesser position because they are not performing at the level required of them in their current position. Other times, an employee's commission scheme has become so out of whack the company needs to reel it back in. Usually, the client has called me because they are concerned that if they do so they will face a constructive dismissal claim

Most HR professionals know the fundamental terms and conditions of an employee's contract cannot be unilaterally changed. For example, you cannot reduce someone's salary from $150,000 to $50,000, or "re-assign" the vice-president of marketing to a new role as a salesman. Such changes relate to the very heart of the employment agreement, and as a general rule they cannot be made unilaterally by either party. (I note that I have yet to see an employee try to reduce their own pay.)

Constructive dismissal involves a unilateral and substantial change to a fundamental term of the employment contract. When such a change is made, the employee can either accept it and continue working under the new terms and conditions, or they can advise their employer that they consider themselves to have been constructively dismissed and leave. In some circumstances, the duty to mitigate requires the employee stay on in the new position.

When it comes to compensation, some experts have opined that a decrease of less than five per cent is usually safe, a decrease of more than 15 per cent will be offside, and everything between the two is arguable. While this is not a rule, it is a guideline many use.

With respect to changes in title and duties, the focus is often on the impact the changes will have to the individual's reputation and role within the company. If they will be humiliated or perceived to have been "downgraded," then it is likely a constructive dismissal.

Other types of changes can be constructive dismissals as well. For example, relocating an employee to a different office may be a constructive dismissal if it imposes a significant change upon the employee's life and was not contemplated, explicitly or implicitly, in their agreement. Similarly, while moving someone from one desk to another may seem innocuous, if it creates a perception they have moved "down the corporate ladder" it can be a constructive dismissal. Similarly, you cannot impose a change to the very nature of someone's job, such as changing them from a salesperson to a labourer.

There are ways for employers implement substantial changes to fundamental terms of the contract. One way is to negotiate them; another is to impose them upon the employee. More on that later.

Stuart Rudner is a partner in the Labour & Employment Law Group of Miller Thomson LLP, a national law firm. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is author of You’re Fired: Just Cause for Dismissal in Canada, published by Carswell. He can be reached at (905) 415-6767 or [email protected]. You can also follow him on Twitter @CanadianHRLaw and join his Canadian Employment Law Group on LinkedIn.

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