The pandemic has made constructive dismissal an area of concern for many employers
Change can be scary. But good or bad, too much change at work can push someone out the door and leave the employer on the hook for constructive dismissal damages.
The past couple of years, the issue of constructive dismissal has been on employers’ radar. During the pandemic, many employers have had to change the terms of employment for their employees, whether it be reducing hours of work and pay or outright layoffs. Governments across Canada amended legislation allowing temporary layoffs during a specific period for reasons related to the pandemic, but this hasn’t stopped a number of constructive dismissal lawsuits from reaching the courts.
Despite the legislation, some employers have lost those lawsuits. And now, with more employees returning to physical workplaces, employers are faced with potential complaints of constructive dismissal stemming from vaccination mandates or the cessation of remote work. It’s a good time to think about constructive dismissal and how to reduce liability.
Understanding constructive dismissal
Generally, constructive dismissal refers to circumstances where employees who haven’t been terminated are placed in a situation that makes them quit their job, or the employer’s conduct indicates that it no longer intends to abide by the terms of the employment contract. This often means the imposition of a unilateral change to the employee’s job or workplace that is significant and fundamental.
Examples include demotions, pay cuts of more than 10 per cent, transfers to a distant location, or negative changes to working conditions. In addition, the employee must indicate they disagree with the change; otherwise, they could be deemed to consent to it, unless there is duress involved.
Temporary layoffs in a non-unionized environment are also usually considered constructive dismissal by courts unless the employment contract specifically allows them. This became a big issue for employers during the pandemic and prompted the legislative change in many jurisdictions. However, it wasn’t a carte blanche for layoffs – in most cases, layoffs were permitted only during a specific period – if they occurred outside that period, the danger of constructive dismissal increased.
Notable constructive dismissal cases
Significant cost-cutting measures may be deemed necessary by an employer, but they are likely to constitute constructive dismissal. Last year, the Alberta Court of Queen’s Bench awarded an executive nine months’ salary, benefits and RRSP contributions – totalling more than $107,000 – after her employer reduced the salary of all employees by 10 per cent, in addition to suspending RRSP contributions and cancelling the bonus program for the year.
The court determined that the cost reduction program was a unilateral and significant change to the executive’s essential terms of her employment contract – the cuts amounted to a 20-per-cent reduction in compensation. Despite evidence of economic trouble for the employer, there was no expressed or implied term in the contract that allowed the employer to make such a change, the court ruled: see Kosteckyj v. Paramount Resources Ltd., 2021 ABQB 225.
However, if an employer’s actions result in a constructive dismissal situation, it may not be too late to fix it. In 2018, the B.C. Supreme Court dismissed a constructive dismissal complaint after a worker resisted his employer’s proposed reclassification and salary reduction that was part of the employer’s efforts to reduce costs. The employer tried to find a solution, revoked the changes, and encouraged the employee to return to work. The employee refused and claimed 23 months’ pay in lieu of notice for constructive dismissal. The court found that it was unreasonable for the employee not to return to his previous position: see Rampre v. Okanagan Halfway House Society, 2018 BCSC 992.
Similarly, the Ontario Superior Court of Justice dismissed a claim of constructive dismissal by a husband and wife who claimed that the sawmill where they worked was unsafe due to clutter, the presence of mice and bats, fluctuating temperatures, and undrinkable water in the bathroom. The court acknowledged that the working conditions were “less than ideal,” but the workers exaggerated them and they hadn’t raised their concerns to the employer until after they left. The real reason for leaving was a letter of reprimand with which they didn’t agree, said the court, which noted that a reasonable person would not have concluded that the employer’s conduct constituted a constructive dismissal: see Lawrence v. Norwood Industries Inc., 2016 CarswellOnt 14939.
The ‘reasonable’ analysis
The above Ontario decision addresses the importance of how a reasonable person would objectively respond to or view a situation, and that’s part of the constructive dismissal analysis. A reasonable person would likely view a change such as a 20-per-cent pay cut or a reclassification to a lower position as unfair without the employee’s consent, but if the employer revoked such a change, it would be reasonable for the worker to return. In addition, there is a difference between working conditions that are dangerous or unhealthy, versus those that don’t meet the worker’s preferences.
Changes can be made to an employment contract with proper consideration – such as a pay raise, promotion, or more vacation leave. And employers can always implement changes with proper notice – generally equivalent to what notice of dismissal would be. This would allow the employee to either resign from their employment or accept the changes as part of a new contract of employment.
Employers have always had to be wary when it comes to making significant changes to workers’ jobs and working conditions. Now, more than ever, it pays to be cautious when bringing about change – it doesn’t have to be scary.
