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What is constructive dismissal?

Business man resign job and compensation letter. Stock photo by Getty Images
Stock photo by Getty Images

If you want to fire an employee, you should make sure you do it right.

Every province and territory has an employment standard act that defines what qualifies as “termination” of employment. A termination can occur for a number of reasons such as a layoff, firing or the company going bankrupt.

Constructive dismissal is when an employer makes a significant change to the terms of employment without the employee’s consent such as reducing the employee’s work hours drastically. Constructive dismissal, or “quitting with cause” as it is also known, also happens when the employer abuses or harasses the employee to an extent where a reasonable person would not be able to continue to work.

The employer's failure to meet its contractual obligations distinguishes a constructive dismissal from an ordinary resignation. These cases result in a claim for pay-in-lieu of termination notice, and sometimes, depending on the severity of the employer's actions, aggravated damages.

In a non-unionized employment context, employee suspensions often create uncertainty as to whether the employer has authority to suspend the employee or whether the suspension amounts to constructive dismissal.

In the Supreme Court of Canada case, Potter v. New Brunswick Legal Aid Services Commission, the employer suspended an employee with pay indefinitely while the parties negotiated a buyout of the employment contract just prior to the employee's return from sick leave. The employee claimed the suspension constituted constructive dismissal and commenced litigation. The employer submitted that the employee's actions in withdrawing from negotiations and suing the employer amounted to voluntary resignation.

The Supreme Court stated constructive dismissal can take two forms:

  • a single unilateral act by the employer that breaches an essential term of an employee's employment contract; or
  • a series of acts by the employer that, taken together, show the employer no longer intends to be bound by the employment contract.

The SCC chose not to create a rigid framework for determining whether a particular suspension is reasonable and justified. Each case depends on the nature and circumstances of the suspension. However, the court presented factors to consider when determining if a suspension under an implied authority is reasonable and justified:

  • the duration of the suspension;
  • whether the suspension is with pay; and
  • whether the employer demonstrated good faith, including the demonstration of legitimate business reasons for the suspension.

An employee who does not receive proper termination notice must be paid “termination pay in lieu of notice.” Generally, this is calculated by multiplying the employee’s regular weekly wage by the number of weeks of notice the employee is owed. For instance, if the employee is owed three weeks of notice and is only given one, the remaining two weeks must be paid out.

In addition to termination, an employee may also qualify for “severance pay”, which is also set out in the employment standards act and in common law. Severance pay is compensation for an employee’s seniority and length of service with one employer.

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