The law surrounding constructive dismissal has changed considerably over the last few years, sometimes making it difficult for employees to successfully prove an entitlement to damages based on constructive dismissal. On March 6, 2015, the Supreme Court of Canada weighed in on the issue of constructive dismissal in the case of Potter v. New Brunswick Legal Aid Services Commission (“Potter”). In Potter, the Court determined that the Employee had been constructively dismissed when his employer suspended him with pay indefinitely and awarded the Employee damages representing the balance of the 7 year fixed term contract.
The Employee was hired for a 7 year fixed term contract and held the position of Executive Director of Legal Aid of New Brunswick. The terms of the Employee’s appointment as Executive Director were governed by section 39 of the Legal Aid Act. After completing almost 4 years of the 7 year contact, the Employee and the Employer entered into negotiations whereby the Employer would buy out the balance of the contract and in exchange for the compensation package, the Employee would resign. The Employer wished to expedite negotiations and without informing the Employee, decided that if an agreement was not reached by a specified date, the Employer would request that the Lieutenant-Governor in Council revoke the Employee’s appointment for cause pursuant to the section 39 of the Legal Aid Act. When the deadline passed without an agreement being reached, the Employer sent a letter to the Minster of Justice recommending that the Employee be dismissed for cause and without first informing the Employee. The Employer then sent a letter to the Employee informing him that his employment was being suspended with pay. Approximately 8 weeks later, the Employee commenced an action against the Employer for constructive dismissal. In response, the Employer discontinued the Employee’s pay and benefits, taking the position that the Employee had resigned his position due to the commencement of legal action. The action was first heard by the New Brunswick Court of Queen’s Bench, who determined that the Employer had the statutory authority under the Legal Aid Act to place the employee on an administrative suspension with pay and dismissed the action. The Employee appealed the decision to the New Brunswick Court of Appeal who dismissed the appeal. The Employee appealed again to the Supreme Court of Canada.
The Supreme Court reviewed the conduct of the parties along with the Legal Aid Act and concluded that the Employee had been constructively dismissed due to the fact that the Employer lacked the authority to suspend the Employee indefinitely with pay and that this indefinite suspension resulted in the Employee’s constructive dismissal.
In rendering its decision, the Court examined the 2 step test to establish constructive dismissal. With respect to the first step, the Court stated that it must “determine objectively whether a breach has occurred. To do so, it must ascertain whether the employer has unilaterally changed the contract. If an express or an implied term gives the employer the authority to make the change, or if the employee consents to or acquiesces in it, the change is not a unilateral act and therefore will not constitute a breach. If so, it does not amount to constructive dismissal. Moreover, to qualify as a breach, the change must be detrimental to the employee.” If a breach has occurred, the second step involves the Court determining whether “at the time the breach occurred, a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed. A breach that is minor in nature in that it could not be perceived as having substantially changed an essential term of the contract does not amount to constructive dismissal.”
The Court determined that as the Employer did not have the authority to suspend the Employee indefinitely and as the suspension was administrative in nature (rather than for disciplinary purposes), the burden shifted to the Employer to establish that the suspension was reasonable. As the purpose of the administrative suspension was to facilitate the negotiation of the buyout and not for disciplinary reasons, the Employer was unable to establish that the administrative suspension was reasonable. The Court also determined that it was reasonable for the Employee to perceive the unauthorized unilateral suspension as being a substantial change to his contract of employment. For these reasons the Court awarded the Employee damages representing the balance of the Contract and did not make any deduction from the notice due to the Employee’s receipt of pension benefits in accordance with the principles established by the Supreme Court of Canada in IBM Canada Limited v. Waterman,  3 S.C.R. 985.
While this case is very fact and legislation specific, it does provide greater understanding of the 2 step test to evaluate claims of constructive dismissal.
Lessons for Employers
This decision demonstrates that some administrative suspensions, even if they are with pay, may trigger a claim of constructive dismissal and result in considerable liability for employers. While establishing an entitlement to damages based on constructive dismissal is a multi-step and sometimes a challenging process, employee claims can be successful and employers should take precautions to minimize their vulnerability to such claims. Prior to implementing changes to the terms of an employee’s employment, including the implementation of a suspension with pay, the advice of an experienced Employment Law Lawyer should first be sought to obtain guidance through this potentially thorny area.
Lessons for Employees
Employees should be aware that while not all unilateral changes implemented by an employer will be detrimental enough to trigger a constructive dismissal, some changes result in an entitlement to damages. When informed of upcoming changes to the terms of employment, whether they seem small or large, prior to agreeing to these changes it is strongly recommended that Employees first seek legal advice to determine whether the changes are likely to support a claim of constructive dismissal and an entitlement to damages. It is imperative that advice be sought prior to the changes being implemented by the employer or agreed to, directly or indirectly, by the employee. Time is of the essence when it comes to claims of constructive dismissal!
Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or an employee, we can help. Contact us to see how.
See also our blog on IBM Canada Limited v. Waterman: “SCC Rules Pension Benefits Should Not Be Deducted From Wrongful Dismissal Damages”.
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