Combination of Breaches Can Result in Constructive Dismissal

Doran v. Ontario Power Generation Inc. – Ontario Superior Court of Justice – November 16, 2007

Two or more breaches of an employment contract may become fundamental when considered together, thereby resulting in constructive dismissal.

The Ontario Superior Court of Justice’s decision on November 16, 2007 in Doran v. Ontario Power Generation Inc. [2007] O.J. No. 4476 (“Doran”) highlights the possibility of an employee being constructively dismissed even though there has not been an individual fundamental breach of the employment contract by the employer. Instead, constructive dismissal may occur when multiple breaches of the employment contract have occurred and the combination of them amount to a fundamental breach of the employee’s employment contract.

In Doran, the employer introduced a voluntary Performance Achievement Plan (“PAP”) in 1995, which was an incentive plan “based on the performance of the company, the business unit and the individual employee.” The employee accepted the new plan and as a result his base salary decreased by five percent. In 1999, the employer replaced the PAP with an Annual Incentive Plan (“AIP”) and a Long-term Incentive Plan (“LTIP”). The plan documents for the AIP and the LTIP stated that they could be amended or terminated by the employer, although the employee claims that he was not aware of this provision. In 2004, the employer decided to freeze all senior executives’ salaries and make changes to the AIP and the LTIP, which caused the employee’s compensation structure to be reduced “by 14% to 17%.”

At the same time, the employee’s employment responsibilities were reduced. Approximately eighty percent of the employee’s duties were put on hold by the employer. The employee believed these changes to be permanent due to the employer stating that they reflected a “change of direction”. In response, the employee expressed his concerns to the employer stating that he felt that he was being constructively dismissed. The employer told the employee that if he did not agree with the changes, then he could resign or retire. The employee resigned from his position and began an action against the employer claiming constructive dismissal.

The Trial Judge found that the employee had been constructively dismissed. The reduction in compensation violated an implied term of the employee’s employment contract that the overall compensation would either remain at the same level or would rise. Additionally, the Trial Judge found that “the significant and unusual reduction in duties, unaccompanied by any explanation or suggestion that the changes were temporary, constituted a breach of the employment contract.” However, neither of these two reductions, when considered individually, demonstrated a case of constructive dismissal. The Trial Judge stated, “…I find that a breach occurred when the total compensation to [the employee] was significantly reduced. In itself, I would not have found the breach to be a fundamental breach entitling [the employee] to conclude that he was constructively dismissed. However, in conjunction with the change in job responsibilities, I find the breach to be fundamental.”

The decision in Doran demonstrates the necessity of there being a fundamental breach of an employment contract in order for a claim of constructive dismissal to succeed. Though a breach of the employment contract may have occurred, it cannot be considered to be a case of constructive dismissal unless the breach was fundamental to the employment contract. With this requirement in mind, Doran suggests that a fundamental breach of the employment contract may be found to have occurred when multiple breaches of less weight are considered together. If the combination of these breaches amounts to a fundamental breach, then the employee may have been constructively dismissed.

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