This article first appeared in French in the April 2015 edition of VigieRT, a publication of the Quebec Association of Certified Human Resources Professionals.

All employers have the power to terminate the employment of their employees; it derives from their power of direction and control. Some provisions of the Labour Standards Act contain guidelines for the exercise of that power and prevention of its abuse by employers. Thus, an employer who dismisses an employee without good and sufficient cause must give the employee reasonable prior notice or compensation in lieu thereof. Such dismissals are generally effected by a notice to the employee stating that their services are no longer required or will no longer be required after a certain date. However, employers will sometimes proceed much more subtly when they wish to sever the employment relationship with an employee. The term associated with that is “constructive dismissal”.

The term originated in the common law provinces of Canada, but its meaning is essentially the same in Quebec law:

[TRANSLATION]

Constructive dismissal occurs where an employer unilaterally alters a fundamental condition of an employment agreement without giving the employee sufficient prior notice of the change. Such an action effectively constitutes termination of the employment contract by the employer, whether or not the latter intends to maintain the employer-employee relationship. Consequently, the employee may consider that the employment contract has been terminated without good and sufficient cause, giving rise to the employer’s obligation to pay damages to the employee in lieu of sufficient prior notice of termination.1

The doctrine of constructive dismissal involves two distinct concepts, namely (i) induced dismissal, and (ii) substantial change to the conditions of employment. Induced dismissal is where the employer masks its true intentions and tries to provoke the employee’s resignation, whereas a substantial change to the conditions of employment does not prima facie have the same connotation of bad faith or malice on the part of the employer.

Thus, an employee who is forced to resign, or whose conditions of employment are substantially changed without a valid reason, may claim to have been constructively dismissed. The case law abounds with cases where, for example, employers reduce their employees’ salary or benefits, refuse to follow through with promised promotions, diminish their employees’ responsibilities, or demote them.

In 1997, the Supreme Court of Canada canvassed the notion of constructive dismissal in its decision inFarber v. Royal Trust Co.2 The Court indicated that in order to conclude that a substantial alteration of the essential terms of the employment contract had occurred, the Court had to determine whether 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. The Court added that the fact that the employee may have been prepared to accept the change is not conclusive.

Establishing bad faith on the part of the employer or the latter’s intention to force the employee to resign is not required when an employee sues on the grounds of constructive dismissal. However, the fact that the employer was in bad faith may have an impact on the amount of compensation awarded to the employee.

Thus, an employee who has been constructively dismissed is entitled to damages as compensation for the sufficient prior notice that the employee was entitled to but did not receive upon termination of his or her employment. The length of the prior notice period varies with the facts of each case, the nature of the employment and the individual circumstances of the employee.

The Potter3 decision

On March 6, 2015, the Supreme Court of Canada rendered a decision on constructive dismissal in thePotter case. In doing so, the Court applied the principles previously established in the Farber decision and provided greater specifics on certain factors pertaining to constructive dismissal.

In this matter, the plaintiff had been appointed Executive Director of the New Brunswick Legal Aid Services Commission (the “Commission”) for a seven-year term. In the first half of his term, his relations with the Commission deteriorated to the point where the parties began negotiating his departure in exchange for a severance package.

However, before an agreement was reached, the plaintiff took sick leave. During his absence, and without his knowledge, the chair of the Commission’s board of directors recommended to the Minister of Justice that he be dismissed. Shortly before he was to return to work, the Commission suspended him indefinitely, with pay, but without giving any reasons for its decision, and delegated his duties to another person.

Two months after his suspension began, the plaintiff, who still did not know the reasons for it despite have inquired about them in writing, commenced an action for constructive dismissal. The Commission thereupon stopped paying him his salary and benefits, on the grounds that he had effectively resigned by bringing his action.

The trial judge concluded that the Commission was not obligated to provide the plaintiff with employment and that he had consequently not been constructively dismissed. The New Brunswick Court of Appeal upheld the trial judgment.

In order to determine whether the plaintiff had been constructively dismissed, the Court applied a two-pronged test. It first of all sought to identify an express or implied term in the employment contract that had been breached. To do this, the Court had to determine whether the employer had unilaterally altered the contract without the employee’s consent or a provision in the contract authorizing it to do so. If that was the case, the Court would then have to decide whether the breach of contract was sufficiently serious to be tantamount to wrongful dismissal. To do this, the Court applied the reasonable person test, asking itself “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.”

In addition, the Court proposed a new method for determining whether constructive dismissal had occurred without the breach of a specific contractual provision, which consists of examining the employer’s overall conduct towards the employee in order to determine whether it evinced an intention on its part to no longer be bound by the employment agreement. If that was the case, the employee need not establish that there was a specific and substantial alteration of his conditions of employment.

The Supreme Court consequently concluded that constructive dismissal can take two forms:

 

  1. a unilateral act that breaches an essential condition of the employment contract, or
  2. a series of acts that, taken together, show that the employer no longer intended to be bound by the contract.

In the Potter case, the Supreme Court proceeded on the basis that in order to decide whether the plaintiff’s suspension was a unilateral act by the employer, it first had to be determined whether the employer had the express or implied power to suspend the employee for administrative reasons. If it did have that power, the allegation of constructive dismissal would have to be dismissed. In this case, however, the power to suspend was not provided for, expressly or implicitly, in the plaintiff’s employment contract or in any other document related to his employment. And given that the plaintiff had been suspended indefinitely, the Commission had not given him any valid reasons therefor and had intended to dismiss him, the Court concluded that there had in fact been a unilateral act on the part of the employer.

The Court went on to decide that this unilateral act, the reasons for which were not known to the plaintiff, substantially changed the conditions of his employment. In the Court’s view, his suspension for administrative reasons, unauthorized and not contractually provided for, constituted a substantial change in his conditions of employment.

Moreover, because of the Commission’s overall conduct, the Court found that a reasonable person in the same situation would have concluded that the Commission was clearly demonstrating its intention to no longer be bound by its employment agreement with the plaintiff. Consequently, the Court overturned the judgments of both courts below.

Some practical advice

Despite the fact that this decision concerns an employee in another province [New Brunswick], it may prove to be relevant for Quebec employers.

The decision serves as a caveat that an administrative suspension, even with full salary and benefits, may be deemed to be a constructive dismissal.

Employers should thus bear in mind that such a measure must be taken in good faith in order to protect a legitimate organizational interest. In addition, the duration of the administrative suspension must have the fewest possible consequences for the employee.

Finally, employers may in some cases be able to modify their employment contracts in order to expressly provide for the right to suspend employees for administrative reasons, or specify their power to do so in employee manuals.