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Employment & Labour

Constructive dismissal: the basics

In the first instalment of a two-part series on constructive dismissal, Toronto employment lawyer Sean O’Donnell discusses the legal basics.

Figuring out if you’ve been constructively dismissed can be tricky for the average employee, says Toronto employment lawyer Sean O’Donnell.

Without the clean break of a termination, uncertainty often reigns, says O’Donnell, principal of SJO Legal Professional Corporation.

“I get people coming to me who are not sure where they stand, and it turns into a very delicate dance between the employee and employer,” he tells AdvocateDaily.com.

Fortunately, the Supreme Court of Canada provided legal guidance on the issue in a landmark 2015 decision, says O’Donnell, who explains that there are two forms any constructive dismissal can take.

“One is where a single unilateral change to the employment contract by the employer breaches an essential term, and the other is where a series of acts, in combination, indicate that the employer no longer intends to be bound by the contract,” he says.

Either way, the effect is to make the employee’s continued employment “intolerable,” O’Donnell says.

Examples of a single, unilateral act by an employer that could amount to constructive dismissal include a significant salary drop or a withheld bonus, he says.  

“But it would usually have to be at least 15 to 20 per cent of compensation. Five per cent or less is going to be seen as too minor,” O’Donnell adds. “Demotion is another big one, but changes to whom the employee reports, working hours or location of work could also potentially result in constructive dismissal.”

He says the second type, requiring a series of events, can be tougher to prove, and frequently involves allegations of harassment and a poisoned work environment.  

The Supreme Court case involved the executive director of a provincial legal aid commission, who entered negotiations over his terms of employment four years into a seven-year contract.

Before reaching an agreement, the man went on sick leave, during which the chair of his employer’s board of directors recommended his termination for cause. He was then told not to return to work. Eight weeks into his indefinite suspension with pay, the man launched an action for constructive dismissal, at which point the employer cut off his salary and benefits, claiming that he had effectively resigned by starting legal action.  

After describing the law on constructive dismissal, the nation’s top court ruled in favour of the executive director, finding that his suspension was unreasonable and that he was within his rights to view the action as a substantial change to his contract.

In Ontario, O‘Donnell says an older case from the province’s top court lays out the paths an employee can choose from when they suspect they may have been constructively dismissed.

The 2008 decision, which involved a marketing vice-president at a data solutions company, describes three options for employees following an employer’s unilateral amendment to a fundamental term of the employment contract:

  • Accept the change, in which case the employment will continue under the altered terms.
  • Reject the change and sue for damages if the employer persists in treating the relationship as subject to the varied term.
  • Reject the change and wait for a response from the employer. The employer may respond by terminating the employee and offering re-employment on new terms, but if the worker is not fired and allowed to continue working, the employee is entitled to insist on adherence to the terms of the original contract.

Stay tuned for part two, where O'Donnell will explain why employees should avoid quitting in constructive dismissal situations, if possible.

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