In March of 2015, the Supreme Court of Canada addressed the issue of constructive dismissal from employment in the case of Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10.  In doing so, the court has clarified the scope of constructive dismissal and updated the test for determining if a constructive dismissal has occurred.  The court has also made it clear that the duty of good faith in contracts applies to all aspects of the employment relationship.  Most significantly, the court has indicated that an employer has an implied contractual obligation to provide work to an employee.  In short, this case has important ramifications for all employers in Canada.

Facts of the Case

Mr. David Potter was employed by New Brunswick Legal Aid Services Commission (the “Commission”) as Executive Director and was appointed for a seven-year term. Unfortunately, the relationship between the Commission and Potter soured, and the parties began to negotiate an early end to Potter’s contract.  Before the negotiations could be completed, Potter left work on sick leave.

The Commission decided that if the buy-out negotiations with Potter were not completed by a certain date, the Commission would ask the Lieutenant-Governor in Council to revoke Potter’s appointment for cause.  Accordingly, just before Potter’s return to work and unbeknownst to him, the Commission wrote to the New Brunswick Minister of Justice recommending that Potter be terminated for cause.  At the same time, the Commission advised Potter that he “ought not to return to the workplace until further direction from the Commission.”

Seven weeks later, Potter commenced an action for constructive dismissal.  The Commission took the position that Potter had therefore resigned from his employment.

Supreme Court of Canada Decision

Test for Constructive Dismissal Refreshed

According to the court’s decision in Potter, constructive dismissal can occur in two ways:

  1. an employer may unilaterally breach a substantial express or implied term of the employee’s employment contract; or
  2. an employer may more generally demonstrate through its conduct that it does not intend to be bound by the employee’s contract.

The test for such dismissal consists of two branches:

  1. Has a breach of the employment contract occurred by a single unilateral act of the employer? If so:
    1. Does that breach substantially alter an essential term of the employment contract?
    2. Would a reasonable person in the same situation as the employee have felt that the essential terms of the employment contract were being substantially changed?
  2. Has there been a series of acts that, taken together, show that the employer intended to no longer be bound by the employment contract?

Requirement of Good Faith

The court found that even if the Commission had the authority to suspend Potter, that authority was subject to a basic requirement of business justification.  The Commission, in the court’s view, had failed to establish that it had a sound business reason for suspending Potter.

The court also made it clear that the duty to act in good faith in contractual dealings means being honest, reasonable, candid, and forthright.  In Potter’s case, he was given no reason whatsoever for the suspension, which the court found was not forthright.  In addition, the Commission’s ostensible reason for the suspension—to facilitate a buy-out of Potter’s employment contract—was undercut by the Commission’s actions in trying to have Potter’s employment terminated for cause.

Duty to Provide Work

Most interestingly, the court found that an employer generally has a duty to provide work to its employee.  Justice Wagner wrote: “To the extent that the proposition that the employer’s discretion [to withhold work] is absolute was ever valid it has been overtaken by modern developments in employment law”.  Such modern developments, in Justice Wagner’s view, include the concept that work is now considered to be “one of the most fundamental aspects in a person’s life, providing the individual with a means of financial support and, as importantly, a contributory role in society.  A person’s employment is an essential component of his or her sense of identity, self-worth and emotional well-being”.

Lessons for Employers

Constructive dismissal remains, as the court in this case admitted, a highly fact-based determination.  Consequently, determining whether a particular act or omission, or series of acts or omissions, constitutes constructive dismissal remains frustratingly difficult to determine.

However, what is clear following Potter v. New Brunswick Legal Aid Services Commission, is that a suspension will constitute constructive dismissal unless:

  •  the suspension is with pay;
  • the suspension is relatively brief in duration;
  • the employer has a legitimate and reasonable business purposes for imposing the suspension; and
  • the employer honestly, candidly, and forthrightly communicates the reason for the suspension to the employee.

Alternatively, the employer may be well-advised to include in the written employment agreement or offer letter a provision that the employer has no obligation to provide the employee with work.