A constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee. There are numerous situations which can amount to constructive dismissal, such as, for example, if the employer substantially changes the employee’s remuneration. Once a constructive dismissal occurs, from a legal perspective, it is as if the employer has terminated the employee without cause, and the employee will be entitled to damages. The employee has a choice to make: either accept the changes made by the employer, or treat the conduct as a repudiation of the contract by the employer and sue for wrongful dismissal. Because of the potential liability, employers generally try to avoid claims of constructive dismissal by giving reasonable notice of changes and/or offering fresh consideration for changes.
A recent illustration of these issues played out in the 2018 Ontario Superior Court case Lancia v. Park Dentistry. In that case, the defendant employer wanted to institute written contracts for its employees. The defendant provided the plaintiff with a letter indicating that her employment would be terminated in 18 months and offering her new employment on terms set out in an attached employment contract. Among other things, the new contract limited the plaintiff’s entitlement on termination to the minimums prescribed by the Employment Standards Act, 2000 and also limited her entitlement to vacation pay. The letter indicated that if the employee signed the new contract before the end of the 18 month notice period, then she would receive a signing bonus of $2,000. The plaintiff signed the agreement within two days of being provided with the new contract and collected the bonus. She resigned 18 months later and claimed that she had been constructively dismissed.
On a motion for summary judgment, the plaintiff’s claim was dismissed. Justice Goodman rejected two arguments made by the plaintiff. First, Justice Goodman held that it was not the place of the court to consider the adequacy of consideration, only that fresh consideration was provided. In this case, it was clear that the employee was given $2,000 to sign the new employment contract and even though her pay would be reduced by more than $2,000 annually the upfront $2,000 payment was fresh consideration such that the argument that the consideration was inadequate was rejected. Second, Justice Goodman rejected the plaintiff’s argument that she was constructively dismissed due to the period of notice given to her in advance of the change. Justice Goodman commented that an employer may transition an employee to a new contract without consideration by providing reasonable notice of the change. In this case, the period of 18 months was reasonable notice of the change in the terms of the employment according to Justice Goodman for the plaintiff, who had been working for the employer for 19 years.
Employers and employees would do well to keep the principles of Lancia in mind when they are considering whether there has been constructive dismissal. From the employee’s perspective, they should refuse to accept any fresh consideration (like a signing bonus) before they know exactly what they are giving up. From the employer’s perspective, this case demonstrates how a constructive dismissal claim can be avoided by giving fresh consideration and/or reasonable notice of the change.