The Supreme Court of Canada’s Recent Two Sense on Constructive Dismissal and Suspensions

May 08, 2015

 

By Pamela Krauss, Lawyer

When asked by a client whether their employment circumstances amount to a constructive dismissal I respond by explaining to them that they should envision a constructive dismissal spectrum.  Some fact scenarios constitute strong constructive dismissal cases at one end of the spectrum, other fact scenarios are weak and at the other end…. and there is a lot of grey in between.  I then advise them where I believe their scenario falls on that spectrum.   

The word “constructive” indicates that the dismissal is a legal construct:  the employer’s act is treated as a dismissal because of the way it is characterized by common law.   A constructive dismissal is invoked when an employer unilaterally changes the substantial terms of employment without the employee’s consent.  In response an employee has the choice to either accept the changes or treat the conduct of the employer as a repudiation of the employment contract and commence litigation.  It may seem simple enough but in fact determining whether there is a constructive dismissal in any particular circumstance is a highly fact-driven exercise that can be frustratingly complex. 

In March 2015 the Supreme Court of Canada (“SCC” or the court) had an opportunity to review and apply employment law principles regarding constructive dismissals and employee suspensions in deciding the case of Potter v. New Brunswick Legal Aid Services Commission 2015 SCC 10.  In this case the employee/plaintiff, Mr. Potter, alleged he was constructively dismissed by the defendant employer when he was suspended indefinitely without being given reasons.  The SCC, in a unanimous decision with concurring reasons, found that indeed the Defendant did constructively dismiss Mr. Potter when it told him, as he was set to return from a sick leave in January 2010, to not return from leave and instead stay away from the office without an explanation.  

What is noteworthy about this case is that the SCC overturned both the trial court decision and the New Brunswick Court of Appeal decision. Both lower courts found in favor of the Commission concluding Potter was not constructively dismissed and that in fact he ended the employment relationship when he commenced litigation 8 weeks following his suspension.  The lack of consensus between the lower courts and the SCC is indicative of the challenges in applying the principles of constructive dismissal to particular fact scenarios. 

And as for the monetary impact of the SCC’s findings - the Commission went from having the case dismissed by the trial judge and New Brunswick Court of Appeal to being ordered to pay Potter for the remaining 33 months of his 7 year contract, or approximately $485,000.00 plus payment of legal costs throughout the proceeding. Ouch!

Out of the comprehensive 53 page Potter decision I have identified 3 key take aways for employees and employers from the SCC’s analysis and comments:

TAKE AWAY #1: Constructive dismissal can take two forms:

1.      Single Unilateral Actthat breaches an essential term of the contract.

This form requires the application of a two part test:

a.           Identify which express or implied contractual term has been breached; and

b.           Determine whether at the time the breach occurred, a reasonable person in the same situation as the employee would have felt the essential terms of the employment contract were being substantially changed.

2.      Series of Acts, that whentaken together, generally show that the employer intended not to be bound by the contract. 

This form requires consideration of the cumulative effect of past acts by the employer and the determination of whether those acts evinced an intention to no longer be bound by the contract.  The question that is to be asked is whether the employer’s treatment of the employee made continued employment intolerable.

TAKE AWAY #2:  Under common law no employer is at liberty to withhold work from an employee either in bad faith or without justification.

In reaching its conclusion that the suspension of Potter by the Commission constituted constructive dismissal the SCC examined whether employers have a duty to provide work to employees and if so, if a suspension breaches that duty. 

The SCC confirmed that only in certain circumstances do employers have a legal duty to provide work, generally where reputation of an employee is paramount to their career – ex: actress, radio or television performer, or sales commissioned employee.   The court however went on to demonstrate an appreciation for the emotional importance of employment stating “it is clear that the benefits derived from performing work are not limited to monetary and reputational benefits”.  The court acknowledges that whether an employee is a CEO or admin assistant, not being able to work will usually have a profound impact on an individual even if they are being paid.  In its decision the SCC takes the opportunity to reemphasize the fundamental values of employment in our society as expressed in Reference re Public Service Employee Relations Act (Alta) [1987] 1  S.C.R. 313:

Work is considered to be “one of the most fundamental aspects in a person’s life, providing the individual with a means of financial support and, as importantly, a contributory role in society.  A person’s employment is an essential component of his or her sense of identity, self-worth and emotional well-being”

The SCC analysis clarifies that when it comes to withholding work (suspensions) without contractual rights to do so or clear business justifications such action will constitute a constructive dismissal and this rule of thumb will apply equally to all types of employees.

TAKE AWAY #3:  The contractual interpretation principles in its earlier decision Bahsin v. Hryew 014 SCC 71, which says all contracts have to be performed with good faith, honestly and openly, will apply in determining if a constructive dismissal has occurred. 

In its decision the SCC repeatedly focuses on the fact that the Commission failed to give Potter reasons for the indefinite suspension concluding it failed to be forthright and honest with the employee.   In applying this basic requirement to the context of a suspension the court concluded that in most circumstances, an administrative suspension cannot be found to be justified in the absence of a basic level of communication with the employee. At a minimum, acting in good faith in relation to contractual dealings means being honest, reasonable, candid and forthright. Failing to give an employee any reason whatsoever for his suspension is not being forthright.  The SCC showed its willingness to apply the Bahsin v. Hryew contractual interpretation principles to employment contracts and that they have no hesitation in doing so.

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