Constructive Dismissal in Ontario: Overview
A constructive dismissal is defined as follows: if an employer makes a substantial change to the terms of an employee’s employment without the employee’s consent or demonstrates an intention to not longer be bound by the terms of the employment contract the employee has the option of treating his or her employment as having been terminated. The departure of the employee will not be considered to be a resignation but, instead, will be a termination of employment.
An employer found to have constructively dismissed an employee will be required to provide the employee with a severance package.
To be considered a constructive dismissal the change(s) to the terms of employment must go to the very heart of the employment contract. Minor changes will not trigger a constructive dismissal. Indeed, an employer has the right to make reasonable changes to an employee’s job duties and responsibilities in order to properly manage its business and adapt to changing market conditions.
Significantly, an employee who is not able to prove that he or she was constructively dismissed will be found to have resigned from his or her employment. Having resigned, the employee will not be entitled to a severance package. Given the risk involved an employee should not quit and claim constructive dismissal without first seeking legal advice from an experienced employment lawyer.
Being constructively dismissed does not entitle the employee to a greater or lesser severance package than if the employer had explicitly notified the employee that he or she was being terminated without cause. The only exception to this statement would be in a situation where the constructive dismissal was triggered by a poisoned or discriminatory work environment that entitled the employee to moral, punitive or human rights damages in addition to damages for wrongful dismissal.
The legal rationale for treating an employer’s unilateral change to the employee’s terms of employment as a constructive dismissal is that a party to a contract has the right to end the contract and seek monetary damages if the other party to the contract is no longer performing his or her obligations under the contract. In the employment context, an employer is no longer meeting its contractual obligations if it has fundamentally altered the employee’s job, work environment or compensation without the employee’s consent.
The Supreme Court of Canada clarified in 2015 in Potter v. New Brunswick Legal Aid Services Commission1 that there are two distinct branches or tests that will determine when a constructive dismissal has occurred:
- when the employer’s single unilateral act (such a demoting the employee) breached the employment contract in a manner that substantially altered the essential terms of the contract; or
- when the employer’s ongoing conduct demonstrates an intention to no longer be bound by the employment contract, from the perspective of the reasonable person.
A court will consider the nature and extent of the unilateral change and the intention of the parties at the time the employment contract was formed when deciding whether a constructive dismissal has occurred.
The most common types of changes that may trigger a constructive dismissal include:
- significantly reducing the employee’s compensation;
- demoting the employee, reducing the employee’s job responsibilities or changing the employee’s reporting relationships;
- requiring the employee to move to a different geographic location;
- requiring the employee to work in a poisoned work environment (i.e. work in an environment where the employee faces ongoing harassment, discriminatory conduct or improper employer discipline);
- failing to pay the employee; or
- laying off the employee. At common law, an employer does not have an automatic right to lay off a non-unionized employee unless the right to layoff is provided for in the employee’s employment contract. This is despite the fact that s. 56(4) of the ESA explicitly recognizes the right to layoff for a period of up to 35 weeks in any period of 52 weeks for the purposes of the ESA (see Motion Industries (Canada) Inc. v. McCarthy2 at para. 20).
The above list is not exhaustive.
An Employee’s Options When Responding to Changes to the Terms of Employment
In Wronko v. Western Inventory Service Ltd.3 the Ontario Court of Appeal wrote that an employee has three options when responding to his or her employer’s unilateral change to the terms of employment:
- to accept the change, however significant. Acceptance can be either implicit or explicit. The employee may be found to have implicitly accepted or acquiesced to the change if the employee takes no action to dispute the change and continues in his or her role for a period of time (the length of time an employee may continue to work under the changed terms before he or she will be considered to have “accepted” the change is often a matter of dispute between the former employee and the employer);
- to reject the change, quit his or her employment and claim that he or she has been constructively dismissed; or
- in certain circumstances (such as a reduction in compensation), the employee may also have the option of remaining employed but notifying the employer that he or she has rejected the change to the employment contract. If the employer does not respond to the employee’s rejection the employer will be found to have acquiesced (i.e. implicitly accepted) to the employee’s position.
If an employee has refused an employer’s attempt to reduce his or her compensation the employer has the option of responding to the employee’s rejection of the change by providing the employee with formal working notice that it is ending the employee’s current employment contract. The employer can then offer the employee a new employment contract under the altered terms. If the employer fails to provide proper notice of termination of the contract, the employee will be entitled to insist on adherence to the original terms of the employment contract.
To successfully claim constructive dismissal the employee must normally quit from his or her employment within a “reasonable” period of time of the employer’s unilateral change. If the employee does not resign within that time frame, the employee will be found to have implicitly accepted the change. What is a “reasonable” time is, unfortunately, difficult to determine. The case law is not consistent on this point. What can be said is that the employee is allowed to take a reasonable period of time to test the new conditions of employment before being required to make a decision.
The length of time an employee will have to decide whether or not he or she accepts the change will vary depending on the type of change that triggered the right to claim constructive dismissal and the personal circumstances of the employee. For example, an employee whose compensation has been significantly reduced may be required to make a decision relatively quickly. However, an employee whose job duties have been significantly altered will likely enjoy a relatively longer period of time to try out the new role, before being required to make a definitive decision. In contrast, an employee subject to sexual harassment during the course of employment will be able to claim constructive dismissal if the sexual harassment has been ongoing for an extended period of time. This is because it is arguable that an employee can never acquiesce to certain types of treatment, such as physical or sexual harassment.
Once an employee accepts the change to the terms of his or her employment (even if acceptance is found to have been implied) it is too late to claim constructive dismissal. The employee will be deemed to have resigned from his or her employment if he or she subsequently quits.
The Obligation of a Constructively Dismissed Employee to Remain with His or Her Employer
An employee who has been constructively dismissed may be required to remain with his or her employer in order to mitigate his or her damages. This is sometimes referred to as accepting “re-employment” (the obligation to accept re-employment is discussed in detail in the mitigation chapter). This requirement places a significant hurdle in front of any employee considering claiming a constructive dismissal because even if the employee is able to prove that he or she was constructively dismissed, the court may still take the position that the employee should have remained working for the employer in order to mitigate his or her damages. The court will review the specific facts and apply an objective standard to determine whether a reasonable person would accept re-employment. Although a number of factors will be considered by a court, often the key factor is whether or not it would be humiliating for the employee to remain with his or her former employer and/or whether the employee would have to work in an acrimonious environment if he or she continued at the employer. In situations where the constructive dismissal was triggered by a legitimate corporate restructuring or financial pressure on the company, and the employee has not been singled out for differential treatment, the dismissed employee is more likely to be required to accept re-employment with the employer to mitigate her damages.
Constructive Dismissal Litigation
An employee who quits and claims constructive dismissal has the burden of proving, on the balance of probabilities, that he or she has been constructively dismissed. Whether an employee has been constructively dismissed is a question of fact. This means that a court will review the specific circumstances of the case and determine if a constructive dismissal has occurred. The employee’s original responsibilities and terms of employment will be compared with those of the new position.
The court will apply an objective rather than subjective test when determining whether a constructive dismissal has occurred. When applying an objective standard the court will consider whether a “reasonable” third person in the same situation as the employee would consider the change so significant that it fundamentally altered the employment relationship. The employee’s personal view of the situation (i.e. the plaintiff’s subjective view) is not decisive.
The employer’s motivation for implementing the unilateral change to the terms of employment is normally irrelevant. An employer may repudiate an employment contract by the changes it made even if it had no intention of ending the employment contract. In other words, even if the employer’s intentions were good, its decision to fundamentally alter the employee’s position may still trigger a constructive dismissal. However, if the employer acted in bad faith when making the change, it may result in the court ordering the employer to pay punitive or moral damages, in addition to damages for wrongful dismissal.
Discussed in detail below, there are decisions in which the trial judge has considered the employer’s motivations when determining if a constructive dismissal has occurred. However, contrary to these decisions, the employer’s motivation for making the change is more appropriately considered when deciding whether a constructively dismissed employee should have mitigated his or her damages by continuing to work for the employer, rather than a factor to be considered when determining whether a constructive dismissal has occurred.
If the plaintiff is not able to prove on the balance of probabilities that a constructive dismissed has occurred, he or she will be found to have resigned. Therefore, the former employee will not be entitled to an award of monetary damages. The plaintiff, as the losing party in the litigation, will likely be required to pay a portion of the employer’s legal costs in addition to being responsible for his or her own legal costs. In short, the downside risk for an employee who resigns from his or her employment and initiates wrongful dismissal litigation claiming a constructive dismissal is significant.
The dilemma faced by an employee placed in the predicament of deciding how to respond to his or her employer’s decision to unilaterally change the terms of employment was aptly set out by Justice Juriansz, writing for the Ontario Court of Appeal in Belton v Liberty Insurance Co. Of Canada.4 The judge wrote at paragraph 25 of the decision:
…it is not unusual for an employer and employees to disagree over whether the employer’s unilateral changes to the terms and conditions of the employment constitute constructive dismissal. The employees’ predicament in such a situation is unenviable. If they leave their employment claiming constructive dismissal, they will face the immediate loss of job and income. They will not know when, or even if, they will find replacement employment. They will have to finance an action in an expensive legal system. Should the matter proceed to trial, they will bear the burden of proving they have been constructively dismissed. Years may pass before the dispute reaches trial, and when it does, the court may not agree with the position they have taken. From the beginning they face the prospect of paying the employer’s legal costs. On the other hand, if the employees acknowledge an employer’s changes and continue to work, they will be taken to have condoned the changes and will no longer be able to claim constructive dismissal if they are dissatisfied with the new terms and conditions of employment.
Thoughts for Employees Facing a Constructive Dismissal
Quitting and claiming a constructive dismissal is very high risk. It should never be done without first seeking the advice of an experienced employment lawyer.
The employer will normally deny a constructive dismissal has taken place and instead take the position that the employee is not entitled to a severance package because the employee has resigned.
The employee should ensure that the changes to his or her employment have been well documented.
Even if the employer has constructively dismissed the employee a question will be raised as to whether the employee should have remained employed with the employer to mitigate his or her damages.
Rather than quitting and claiming a constructive dismissal, a better strategy in many constructive dismissal situations is for the employee is to encourage his or her employer to terminate the employment relationship. In other words, the employee takes steps to try to get terminated without cause. Triggering a termination will entitle the dismissed employee to a severance package without the need to first prove a constructive dismissal.
Experienced employment lawyer regularly assist employees responding to changes at the workplace. The lawyers are skilled in coaching employees in steps to take to trigger a termination without cause. Each case is different. The employer is not made aware of the fact that the employee is attempting to end the employment relationship. The employee continues to perform his or her duties diligently and ethically. However, as an example, the employee may make it clear that he or she does not believe in the future direction of the company. The strategy works in most constructive dismissal situations because the employment relationship has already frayed. It is particularly appropriate in circumstances where the employer appears to be changing the terms of the employee’s employment as a tactic to force the employee to resign from his or her employment.
The lawyer will assist the employee by, as an example, ghost writing emails to the employer designed to encourage the employer to end the employment relationship. The strategy is a very effective when done right.
The strategy of the employee taking steps to prod the employer to terminate the employment relationship is often preferable to the employee quitting and claiming constructive dismissal. It eliminates the risk that the employee will not be entitled to a severance package because the changes to the terms of employment were not significant enough to amount to a constructive dismissal.
Thoughts for Employers Intending To Make Changes to the Employment Relationship
A well-planned strategy on how to implement a change to the employment relationship will reduce the likelihood of significant dismissal and legal costs. Each situation is different. Not ever change will trigger a constructive dismissal. The key for the employer is to recognize that the change may trigger a constructive dismissal and plan accordingly.
If the employee has indicated that he or she is unwilling to accept the change the safest way for an employer to avoid a constructive dismissal is to provide the employee with clear and unambiguous notice that the change will occur on a specific date in the future. The notice period provided to the employee should be identical to the notice period that the employee would be entitled to if his or her employment was terminated. At the end of the notice period the employee’s employment will continue subject to the change terms of employment.
If an employee has resigned claiming that he or she has been constructively dismissed the employer should consider asking the employee, in writing, to return to work. If the employee fails to return to work the employer will be able to argue, potentially successfully, that the employee failed to mitigate his or her damages and therefore should not be entitled to wrongful dismissal damages.
A constructively dismissed employee is more likely to be expected to continue working in order to mitigate his or her damages if the change and the manner in which the change was implemented has not humiliated the employee.