SCC weighs in on constructive dismissal
Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (CanLII)
Paid administrative suspension = Constructive dismissal
David Potter signed a seven-year contract to work as the executive director of a government agency. The relationship soured and the parties started negotiations to end the contract early. Potter then went on sick leave. Before he returned to work, the employer placed him on an indefinite administrative suspension with pay. At the same time, the employer secretly asked the government to fire Potter for cause. The employer refused to tell Potter why he had been placed on an administrative suspension and assigned his duties to another person. Potter quit and sued for constructive dismissal.
Supreme Court of Canada recognizes two types of constructive dismissal
The SCC stated there are two ways an employee can be constructively dismissed.
- Repudiation by breach of a specific term in the employment contract
Under this approach (which, in practice, is the more common approach), a constructive dismissal takes place when the employer breaches an implicit or explicit term of contract and that breach “substantially alters an essential term of the contract."
Newsflash: Placing an employee on a paid administrative suspension can constitute a breach of contract.
In this case, the SCC concluded that the employer did not have an implicit or explicit right to place Potter on an indefinite paid administrative suspension. As far as non-disciplinary suspensions are concerned, the court stated that an employer never has a right to withhold work from an employee unless it can demonstrate that it is reasonable and justified. Furthermore, the court said that an administrative suspension will usually not be justified where there has been no communication with the employee about the reason. Accordingly, employers should provide an employee with reasons before imposing a paid administrative suspension.
- Repudiation without a specific breach of the employment contract
Under this approach, an employee can prove a constructive dismissal exists if he or she can show the employer no longer intends to be bound by the contract. In other words, the employer does not have to show that a specific term of the contract has been breached. In this case, the minority judgment by Justice Thomas Cromwell and the Chief Justice applied the second approach. They ruled that the employer’s suspension of Potter, while it attempted to bargain a buy out of his contract, would have demonstrated to a reasonable person that the employer did not intend to continue to be bound by the contract in the future.
Newsflash: An employee cannot rely on evidence that comes to his attention after he quits to show that his employer did not intend to be bound by the contract even though the employer can rely on evidence that comes to its attention after he was terminated to prove just cause.
In this case, the majority opinion ruled that Potter could not rely on the evidence that his employer was trying to fire him for cause to show that the employer did not intend to continue to be bound by the contract.
Takeaways from this decision
- If an employer wants the right to place an employee on a paid administrative suspension then the employer needs to include a new term in its standard employment contract.
- If an employer wants to place an employee on an unpaid administrative suspension then its duty to act in good faith includes the obligation to provide the employee with reasons for the suspension.
- It is extremely difficult for employment lawyers to predict whether a change in employment constitutes a constructive dismissal. In this case, the trial judge and Court of Appeal concluded that no constructive dismissal took place whereas the Supreme Court of Canada ruled that Potter was constructively dismissed.