An Objective Test Will Be Applied

In Smith v. Viking Helicopter1 the Ontario Court of Appeal emphasized that the courts will apply an objective standard when determining whether an employee was constructively dismissed.  The Court wrote at paragraph 8:

… a damage action for constructive dismissal must be founded on conduct by the employer and not simply on the perception of that conduct by the employee. The employer must be responsible for some objective conduct which constitutes a fundamental change in employment or a unilateral change of a significant term of that employment.

When applying an objective standard, the court determines whether a reasonable third person would consider the employee to have been constructively dismissed as a result of the employer’s unilateral actions.   The plaintiff’s own subjective view is not determinative.

In reaching its decision, the court will consider the intention of the parties at the time the contract was formed and the nature and degree of seriousness of the breach of contract when deciding whether a constructive dismissal has occurred.

In Farber v Royal Trust Co.2 the Supreme Court of Canada confirmed that the employer’s intention is not determinative when considering whether a constructive dismissal has occurred.  Gontheir J., writing for the Court, wrote at paragraph 27:

Moreover, for the employment contract to be resiliated, it is not necessary for the employer to have intended to force the employee to leave his or her employment or to have been acting in bad faith when making substantial changes to the contract’s essential terms.  However, if the employer was acting in bad faith, this would have an impact on the damages awarded to the employee.

The focus of the enquiry when determining whether a constructive dismissal has occurred is requires an objective review of the nature and the extent of the unilateral change to the employee’s terms of employment and the agreement of the parties at the time the employment contract was formed.

Nevertheless, there are decisions in which the trial judge has considered the employer’s justification for making the change when deciding whether an employee was constructively dismissed.  For example, Haglund v Clean Harbors Canada Inc.3 considered a sales representative who claimed that she had been constructively dismissed after her employer increased the annual sales quota to qualify for her bonus by 40%.  In denying the plaintiff’s claim the judge wrote at paragraph 30:

…the defendant did not demonstrate an intention not to be bound by the terms of the contract.  Rather, the defendant demonstrated an intention to continue to be bound by its obligations to the plaintiff by ensuring that her targets for bonus were reasonable and by promising to make adjustments if necessary.  In my view, even aside from the defendant’s intentions, the changes made to the bonus targets were reasonable and did not constitute a fundamental breach of the contract.  Each year Ms. Haglund’s targets were adjusted to provide an incentive for her to increase her sales.  Based on the redistribution of territory in 2004, her targets were not unreasonable.

The reasoning in Haglund, arguably, is an error of law.  The better view is that the employer’s reason or justification for making the unilateral change is only relevant when determining whether a constructively dismissed employee had an obligation to remain with the employer in order to mitigate his or her damages.  In other words, the employer’s justification is not relevant when deciding whether an employee has been constructively dismissed but is relevant when deciding whether a constructively dismissed employee has an obligation to continue working for the employer.  In practical terms, although the analytical framework applied is different, the end result is the same.

  1. Smith v. Viking Helicopter Ltd., 1989 CanLII 4368 (ONCA);
  2. Farber v Royal Trust Co., 1997 CanLII 387 (SCC);
  3. Haglund v Clean Harbors Canada Inc., 2007 BCSC 1719;