Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (Employment law — Constructive dismissal — Damages)

On appeal from a judgment of the New Brunswick Court of Appeal (2013 NBCA 27), pronounced April 25, 2013, affirming a decision of Grant J. (2011 NBQB 296).

P was appointed as the Executive Director of the New Brunswick Legal Aid Services Commission (“Commission”) for a seven‑year term. In the first half of that term, the relationship between the parties deteriorated and they began negotiating a buyout of P’s employment contract. P took sick leave before the matter was resolved. Just prior to his return, and unbeknownst to P, the Commission wrote a letter to the Minister of Justice recommending that P’s employment be terminated for cause. The Commission’s legal counsel wrote to P’s lawyer on the same date, advising that P was not to return to work until further direction from the Commission. Before the conclusion of his sick leave, the Commission suspended P indefinitely with pay and delegated his powers and duties to another person. P claimed that he was constructively dismissed and commenced litigation. The Commission took the view that in doing this, P had voluntarily resigned. The trial judge found in favour of the Commission, as did the Court of Appeal.

Held (7:0): The appeal should be allowed.

Per Abella, Rothstein, Moldaver, Karakatsanis and Wagner JJ.: 

P was constructively dismissed. In light of the indefinite duration of his suspension, of the fact that the Commission failed to act in good faith insofar as it withheld reasons from him, and of the Commission’s concealed intention to have him terminated, the suspension was not authorized by his employment contract. Nor did the Commission have the authority, whether express or implied, to suspend P indefinitely with pay and that suspension was a substantial change to the contract, which amounted to constructive dismissal.

The test for constructive dismissal has two branches. The court must first identify an express or implied contract term that has been breached and then determine whether that breach was sufficiently serious to constitute constructive dismissal. However, an employer’s conduct will also constitute constructive dismissal if it more generally shows that the employer intended not to be bound by the contract. This approach is necessarily retrospective, as it requires consideration of the cumulative effect of past acts by the employer and the determination of whether those acts evinced an intention no longer to be bound by the contract. Given that employment contracts are dynamic in comparison with commercial contracts, courts have properly taken a flexible approach in determining whether the employer’s conduct evinced an intention no longer to be bound by the contract.

The first branch of the test for constructive dismissal, the one that requires a review of specific terms of the contract, has two steps:  first, the employer’s unilateral change must be found to constitute a breach of the employment contract and, second, if it does constitute such a breach, it must be found to substantially alter an essential term of the contract. For that second step of the analysis, the court must ask whether, at the time that 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 determining this, a court must not consider evidence consisting of information that was neither known to the employee nor reasonably foreseeable.

Constructive dismissal can take two forms:  that of a single unilateral act that breaches an essential term of the contract, or that of a series of acts that, taken together, show that the employer intended to no longer be bound by the contract. In all cases, the primary burden will be on the employee to establish constructive dismissal, but where an administrative suspension is at issue, the burden will necessarily shift to the employer, which must then show that the suspension is reasonable or justified. If the employer cannot do so, a breach will have been established, and the burden will shift back to the employee at the second step of the analysis.

A finding of constructive dismissal does not require a formal termination, but a unilateral act by the employer to substantially change the contract of employment. In this case, the Commission was P’s employer for most purposes, although the Crown was his employer for the purposes of appointment, reappointment and termination. In other words, the Commission had the power to substantially change P’s contract, and thus to constructively dismiss him.

The express terms of P’s employment contract are found in the Legal Aid Act, R.S.N.B. 1973, c. L‑2, and in the terms and conditions of employment established by the Commission pursuant to s.39(2) of that Act. However, none of those terms nor conditions, or even the Act itself, refer to suspension for administrative reasons. There is simply no express grant of power to suspend.

There is also no implied grant of power to suspend. Given the nature of the Executive Director’s position and the detail in which his statutory obligations were defined in the contract, the Commission had an obligation to provide P with work. Even if the Commission had an implied authority to relieve P of some or all of his statutory duties, such an authority is not unfettered, but is subject to a basic requirement of business justification. Because the Commission has failed to establish that the suspension was reasonable or justified, it cannot argue that it was acting pursuant to an implied term of the contract, which means that the suspension constituted a unilateral act. To begin with, P was given no reasons for the suspension. 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. Moreover, the limited evidence presented in support of the Commission’s ostensible purpose of facilitating a buyout is undercut by the actions that the Commission took to have P terminated. The Commission’s letter to the Minister in which it recommended that P be terminated ought to be admitted at this stage of the analysis. Add to this the facts that P was replaced during the suspension period and that the period was indefinite, and there remains no doubt that the suspension was unauthorized. 

Furthermore, on the evidence, it cannot be said that P acquiesced in the change. Even if P was interested in a buyout, that interest can in no way be taken as consent to his suspension, nor can it be prejudicial to his position in his action. P simply did what most employees would do if their employer raises the possibility of a buyout:  listen to the offer and, depending on its terms, consider accepting it.

With respect to the second step of the first branch of the test for constructive dismissal, it was reasonable for P to perceive the unauthorized unilateral suspension as a substantial change to the contract. As far as he knew, he was being indefinitely suspended and had been given no reason for the suspension. The letter to P stated that the suspension was to continue until further direction from the Commission. When P had his lawyer write to request clarification of the Commission’s instructions, the Commission persisted in its silence regarding the reason. That is sufficient to discharge P’s burden here. Knowledge of the reasons given by the Commission at trial should not be imputed to P as of the time of the suspension.

In short, P has proven that the Commission’s unilateral act breached his employment contract and that the breach substantially changed the essential terms of the contract. P was constructively dismissed and therefore entitled to damages for wrongful dismissal. The trial judge’s provisional assessment of those damages should be adopted, with the exception that on the basis of the private insurance exception from IBM Canada Limited v. Waterman, 2013 SCC 70, [2013] 3 S.C.R. 985, P’s pension benefits should not be deducted from the damages awarded to him. Those benefits were not intended to compensate P in the event of his being wrongfully dismissed. Section 16 of the Public Service Superannuation Act, R.S.N.B. 1973, c. P‑26, does not displace the private insurance exception. Neither the ordinary meaning of the words of s.16 nor its context support the position that the provincial legislature intended to preclude the common law rule in Waterman. Rather, they support the position that s.16 is intended for situations in which a former employee who is receiving pension benefits returns to employment in the public service. It therefore neither applies to wrongful dismissal cases nor precludes P from collecting both the full damages amount and his pension benefits.

Per McLachlin C.J. and Cromwell J. (concurring): 

The trial judge made two related errors of law in his analysis of whether the Commission had repudiated P’s employment contract and thereby constructively dismissed him. First, the trial judge failed to recognize that constructive dismissal may be established not only on the basis of a sufficiently serious breach, but also by conduct which, in light of all of the surrounding circumstances and viewed objectively by a reasonable person in the position of the employee, shows that the employer does not intend to be bound in the future by important terms of the contract of employment.

In this case, the surrounding circumstances reveal the following:  (i) the Commission wanted to bring P’s employment to an end before the expiry of the term of his contract; (ii) the Commission wanted him to stay out of the workplace indefinitely; and (iii) the Commission provided no assurances that it would continue to honour the remuneration terms of his contract in the future. Had the trial judge taken these surrounding circumstances into account, as the relevant legal principles require, rather than focusing simply on how serious a breach of contract the suspension was, he would inevitably have concluded that the Commission had evinced a clear intention not to be bound in the future by important provisions of P’s employment contract.

The trial judge’s second error was to exclude from consideration the fact that on the same day the Commission counsel instructed P to stay out of the workplace indefinitely, the Commission sent a letter to the Minister of Justice seeking to have P’s appointment revoked for cause. The trial judge decided that he could only consider what P knew at the time he claimed to have been constructively dismissed.

While the law on this point is not as clear or as settled as one would wish, a non‑breaching party claiming repudiation is entitled to rely on grounds actually in existence at the time of the alleged repudiation but which were unknown to him at the time. In other words, P is entitled to rely on the Commission’s conduct up to the time he accepted the repudiation and sued for constructive dismissal, even if he was unaware of it at that time. This is important for the purposes of this case:  the trial judge excluded from consideration the fact, unknown to P at the time, that the Commission on the very day that it suspended him, sent a letter seeking to have his appointment revoked for cause. The trial judge therefore erred in failing to take this into consideration in deciding whether P had been constructively dismissed. Contrary to the opinion of the Court of Appeal, the judge’s error was not harmless. The letter, understood in the context in which it was written, made it clear that the Commission did not intend to be bound in the future by important provisions of his contract of employment. This was one of the surrounding circumstances that the judge was obliged to consider in deciding whether the suspension, viewed in light of all of the circumstances, evinced the Commission’s intention not to be bound by the contract.

According to this Court’s decision in IBM Canada Limited v. Waterman, 2013 SCC 70, [2013] 3 S.C.R. 985, the pension benefits that P received should not be deducted from his damage award for wrongful dismissal.

Reasons for judgment by Wagner J., concurring reasons by Cromwell J.

Neutral citation: 2015 SCC 10. http://scc-csc.lexum.com/scc-csc/scc-csc/en/item/14677/index.do