Constructive Dismissal Revisited

While employers have a general right to manage the workplace, they do not have a general right to unilaterally alter important terms in the employment contract. A constructive dismissal arises where an employer’s conduct amounts to a repudiation of an employment contract. The employer has not advised the employee that she is being terminated but its actions have the same effect. Employees who have been constructively dismissed are entitled to damages in lieu of reasonable notice of termination.

Recently, the Supreme Court of Canada in Potter v. New Brunswick Legal Aid Services Commission determined that a constructive dismissal can arise in two ways:

• a single unilateral act by the employer that breaches an essential term of an employee’s employment contract; or
• a series of acts by the employer that, taken together, show the employer no longer intends to be bound by the employment contract.

The former typically results from unilateral actions such as a demotion, reduction in compensation or change in reporting structure or work location (i.e., situations where an employer has altered an important term of the employment contract). The latter involves situations where an employer creates or permits an intolerable working environment such that a reasonable person would conclude that the employer no longer intended to be bound by the terms of the contract.

It is important to remember that not all unilateral changes to an employee’s employment contract result in a constructive dismissal. The primary burden is on the employee to establish constructive dismissal and an employer can alter non-essential terms without repudiating the contract. That being said, employers must take care when making unilateral changes to the terms of employment. Although courts will provide some deference to an employer’s right to manage its workplace, a failure to properly consider the impact of its decisions may result in an employer mistakenly terminating an employee and exposing itself to damages.