Unpaid suspensions: clarification on the law
A recent decision from the Ontario Court of Appeal has refined the law on administrative suspensions and, particularly, when such a suspension constitutes a constructive dismissal. An administrative suspension can be an effective interim measure pending the results of an investigation into workplace misconduct, harassment or violence. However, employers do not have unfettered freedom to impose administrative suspensions and where suspensions are imposed unreasonably employers can be liable for constructive dismissal damages.
In this decision, the Court of Appeal set out factors to be used in assessing the reasonableness of an unpaid administrative suspension and whether or not an employee has been constructively dismissed. The case involved a security worker in a casino who was placed on an administrative suspension after he was implicated in a series of thefts from the casino’s lost and found section. The legislation under which casinos operate requires that employees working in the facilities possess a gaming registration with the Alcohol and Gaming Commission of Ontario (ACGO). After being suspended from work, and while an investigation into the thefts was underway, the employee voluntarily surrendered his gaming registration and therefore could no longer work at the casino. The ACGO’s rules prohibited the employee from seeking a new gaming registration for at least two years. As a result, the employer subsequently terminated the employee’s employment.
The employee brought a claim against the employer for constructive dismissal. The court held that the employee had been constructively dismissed and awarded reasonable notice damages, as well as punitive damages in the amount of $100,000.
Court of Appeal
The employer appealed the decision to the Ontario Court of Appeal, which affirmed the lower court’s decision on the issue of constructive dismissal but overturned the award of punitive damages.
The Court of Appeal affirmed the two-step test for constructive dismissal endorsed by the Supreme Court of Canada in this case. First, the court must identify an express or implied contractual term that has been breached, and second, the breach must be sufficiently serious to constitute constructive dismissal.
The court held that, while the burden ordinarily lies with the employee to establish that they have been constructively dismissed, where an administrative suspension is involved the burden shifts to the employer to establish that the suspension was justified. The Court of Appeal confirmed that the following factors should be considered in determining whether a suspension is justified:
- Whether there is a sufficient connection between the act with which the employee is charged and the kind of employment the employee holds;
- The actual nature of the charges;
- Whether there are reasonable grounds for believing that maintaining the employment relationship, even temporarily, would be prejudicial to the business of the employer’s reputation; and
- Whether there are immediate and significant adverse effects that cannot practically be counteracted by other measures.
The Court of Appeal found that the suspension was justified given that the respondent was possibly involved in theft from the employer’s lost and found facilities. However, the employer’s decision to place the employee on an unpaid suspension was found to be unreasonable. While the casino’s policy handbook provided that the employer could suspend an employee, it did not expressly state that the suspension would be unpaid. Absent an express contractual provision, the court found that the employer was required to justify that the unpaid suspension was reasonable in the circumstances.
The employer submitted that the decision to suspend the employee was reasonable because he had surrendered his gaming registration. The court rejected this argument on the basis that, at the time he was suspended, the employee’s gaming registration had not yet been suspended. The court found that the casino had placed the employee on an unpaid suspension automatically without considering whether such a decision was justifiable. The court found that at the early stages of the police investigation there was no reasonable prospect that the employer could have concluded that an unpaid suspension was warranted as the police had not found the employee guilty of theft, nor had his gaming registration expired at the time. Accordingly, because the decision to suspend without pay was not justifiable, the court concluded that the decision constituted a unilateral change to the employment relationship that constituted constructive dismissal.
In determining the appropriate damages, the court rejected the employer’s argument that the employee had condoned the change in terms of employment by failing to protest the decision. The court also rejected the notion that damages for the constructive dismissal should only cover the period until the employee surrendered his gaming registration, stating that the damages for constructive dismissal are the same as the damages for wrongful dismissal and are based on what the reasonable notice period ought to have been. The court did, however, reduce the notice period provided by the lower court from 17 months to seven, which was in line with the employee’s age, service record and position. The court also overturned the punitive damages award of $100,000, noting that punitive damages are only necessary where the manner of dismissal requires additional sanction to prevent it from happening again.
The decision in this case indicates that courts will assess unpaid suspensions with a higher level of scrutiny than paid suspensions. Accordingly, employers should not impose unpaid suspensions unless they are expressly permitted to do so by a contract of employment or the circumstances are such that an unpaid suspension is reasonable. Where an employer imposes an administrative suspension that is neither expressly permitted by contract nor reasonable in the circumstances, the employer runs the risk of liability for constructive dismissal damages.