A new Supreme Court of Canada decision provides guidance with regard to constructive dismissals and employee suspensions. In particular, employers must provide a business justification for administrative suspensions with pay or risk being deemed to have constructively dismissed the suspended employee. 

Constructive dismissal arises when an employee who has not been expressly terminated claims the employer's actions amount to a repudiation of the employee's employment contract. 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.

While the Supreme Court of Canada’s (the SCC's) latest decision and comments do not answer all questions or provide any new rights with regard to constructive dismissal and employee suspensions, they provide a new analytical framework and some clarity on these topics, which is important because the stakes are often life-altering when an employee claims constructive dismissal—a big pay out or a deemed voluntary resignation.

Background

In Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 ("Potter"), 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.

Both the trial court and the appellant court agreed with the employer, determining that the employee had resigned and was not constructively dismissed. However, the SCC granted the appeal in a 7-0 decision, with two judges providing separate concurring reasons. The SCC determined the employer neither had express authority to suspend the employee, nor provided a reason why he was suspended. The suspension was therefore not reasonable and justified, and constituted a constructive dismissal.

Constructive Dismissal

The SCC stated in Potter that constructive dismissal can take two forms:

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

The first form (or "branch") of constructive dismissal requires an analysis of the employee's contract, and typically arises when the employer unilaterally changes an employee's compensation, duties or place of work. When this occurs, the employee must prove on a balance of probabilities that: (i) the employer breached an express or implied term of the employee's contract, and (ii) the breach substantially altered an essential term of the contract.

The second branch occurs when the employer's actions indicate the employer no longer intends to be bound to the employment contract. The second branch does not involve a breach of the contract; rather, it arises when the employer's conduct makes continued employment intolerable for the employee. The courts must take a retrospective approach and consider the cumulative effect of past employer actions on the employee. The test to be applied is whether, in light of all the circumstances, a reasonable person would conclude that the employer no longer intended to be bound by the terms of the contract.

In both first and second branch cases, the employer's perceived intention to no longer be bound by the employment contract gives rise to the breach.

Non-Unionized Employee Suspensions

The SCC stated in Potter that an employee suspension is not wrongful if the employer had the express or implied authority to suspend the employee. Where the employer imposes an administrative (or non-disciplinary) suspension on an employee, the first branch of the constructive dismissal analysis is modified.

The onus shifts to the employer to prove on a balance of probabilities that the employer had express or implied contractual authority to impose the suspension. If the employer proves it had express contractual authority to suspend an employee, the suspension may not be deemed to be a breach of the contract. For the employer to prove it had implied contractual authority to suspend the employee, it must demonstrate that the suspension was reasonable and justified.

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 SCC 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.

With regard to the "good faith" assessment, the SCC applied its decision in Bhasin v Hrynew, 2014 SCC 71 ("Bhasin"), stating that not providing the employee with reasons for the suspension is not acting in good faith. In doing so, the SCC in Potter applied Bhasin, which was decided in a commercial contract context, to an employment law case, meaning that all parties in an employment law contract are expected at law to be honest, reasonable, candid and forthright in executing the contract. How this principle will be applied in employment law beyond Potter is yet to be seen.

With regard to "legitimate business reasons", the SCC stated:

Other than in the context of a disciplinary suspension, an employer does not, as a matter of law, have an implied authority to suspend an employee without such reasons. Legitimate business reasons must always be shown, although the nature or the importance of those reasons will vary with the circumstances of the suspension.

Resignation

Of note, the SCC also stated in obiter dictum in Potter there are circumstances in which an employee could commence litigation against the employee's employer for constructive dismissal and still not be deemed to have voluntarily resigned. These circumstances may occur in a situation where the employee has commenced the legal action but has continued to work under protest for the employer.

Conclusion

The SCC in Potter tied together a number of loose threads in Canadian case law and created a new analytical framework for constructive dismissal claims generally,as well as specifically in the context of administrative suspensions in an non-unionized context.

The new frameworks provide clarity with regard to how an employer's actions are to be analyzed. Nevertheless, each case will determined on its unique circumstances, and Potter does not—and could not—provide a rigid and comprehensive template to determine when an employer's actions constitute constructive dismissal.

However, constructive dismissal is a common issue that arises in employment law, and given that the stakes are so high when the issue arises, the SCC's comments on the topic, in Potter, provide important guidance for both employers and employees.