On March 6, 2015, the Supreme Court of Canada (SCC) revisited and clarified the common law test for constructive dismissal in Potter v. New Brunswick Legal Aid Services Commission. In doing so, the SCC overturned decisions of the New Brunswick Court of Queen’s Bench and New Brunswick Court of Appeal, and found that an employee who had brought an action eight weeks after being suspended indefinitely with pay and having his powers delegated to someone else was constructively dismissed.
The New Brunswick Legal Aid Services Commission appointed Mr. David Potter as executive director for a term of seven years. After completing almost four years of the contract, the parties began negotiating a buyout of Mr. Potter’s contract. Before the matter was resolved, Mr. Potter took sick leave. During this time, the chairperson of the Commission’s Board of Directors recommended to the Minister of Justice that Mr. Potter’s employment be terminated for cause. On the same day, counsel for the Commission also wrote a letter to Mr. Potter’s lawyer stating that he was not to return to work until he received further direction. Mr. Potter was suspended indefinitely with pay and his powers were delegated to someone else. Eight weeks later, he commenced an action for constructive dismissal. In response, the Board cut off Mr. Potter’s salary and benefits, and took the position that—based on his commencing a legal action—he had effectively resigned from his position.
Was Mr. Potter constructively dismissed or did he voluntarily resign?
CONSTRUCTIVE DISMISSAL: LEGAL TEST
Constructive dismissal is a legal construct designed for situations where an employer’s actions evidence an intention to no longer be bound by the employment contract, despite not formally dismissing an employee.
According to the SCC, the test for constructive dismissal has two branches. The first branch, which requires a review of the specific terms of the employment 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.”
To determine whether a breach has occurred, the SCC stated that a determination must be made as to whether the employer has unilaterally changed the contract. If the employer has the authority to make the change or the employee consents to the change, there will be no breach because the change will not be considered a unilateral act. To determine whether a breach substantially altered an essential term of the contract, a court must determine “whether a reasonable person in the employee’s circumstances would have perceived, inter alia, that the employer was acting in good faith to protect a legitimate business interest, and that the employer’s act [in this case, imposing an indefinite suspension] had a minimal impact on him or her. . . .”
The second branch of the test for constructive dismissal will be met where the employer’s conduct was such that a reasonable person would conclude that they were no longer bound by the contract.
Therefore, according to the SCC, constructive dismissal can take either of two forms. It can either result from a single unilateral act that serves to breach an essential term of the employment contract (i.e., first branch) or from a series of acts that, taken in their totality, demonstrate that the employer no longer wishes to be bound by the employment contract (i.e., second branch).
APPLICATION TO THIS CASE
While the SCC was split on its reasons for judgment, all of the justices ultimately agreed that Mr. Potter was constructively dismissed and that the findings of the lower courts should be overturned.
Writing for the majority, Justice Richard Wagner found that Mr. Potter was constructively dismissed by the Commission.
The SCC found that there was no express or implied grant to the Board to suspend Mr. Potter. The express terms of the employment contract could be found in New Brunswick’s Legal Aid Act, which did not contain any reference to suspensions for administrative reasons and thus did not contain an express grant of authority to suspend Mr. Potter. There was also no implied grant of authority to suspend Mr. Potter.
The court further stated that even if there was an implied authority to suspend Mr. Potter, the suspension was not reasonable or justified in the circumstances.
Finally, the court found that although Mr. Potter was agreeable to a buyout, this could not support a finding that he had acquiesced in the change to his employment contract. Instead, Mr. Potter listened to the potential offers and considered them, which is “what most employees would do if their employer raises the possibility of a buyout.” Therefore, after considering all of the relevant factors, the majority of the court was satisfied that Mr. Potter’s suspension was a unilateral breach of the employment contract, thus satisfying the first step of the first branch of the test for constructive dismissal.
Turning to the second step of the first branch of the test for constructive dismissal, the SCC found that it was reasonable for Mr. Potter to view the unilateral suspension as a substantial change to his employment contract. He was suspended for an indefinite period without reason, and despite attempts to clarify the Commission’s instructions that he stay away from work, the Commission remained silent and did not provide any explanation. This was sufficient to discharge Mr. Potter’s evidentiary burden. Consequently, the SCC awarded Mr. Potter damages for wrongful dismissal.
The majority did not believe that constructive dismissal could be established on the basis of the second branch of the test; however, as they found the first branch of the test had been satisfied, their finding in respect of the second branch did not impact their conclusion.
In the concurring reasons, Justice Thomas Cromwell, writing for Chief Justice Beverley McLachlin and himself, approached the analysis in a different way. They adopted a broader approach and found that “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 addition, they found that the trial judge had erred in failing to take into consideration the correspondence sent to the Minister of Justice by the Commission, on the day Mr. Potter was suspended, seeking to have his appointment revoked for cause. While this fact was unknown to Mr. Potter at the time, he was nevertheless entitled to rely on the actions of the Commission up to the time he accepted the repudiation and sued for constructive dismissal.
Potter v. New Brunswick Legal Aid Services Commission seeks to clarify existing constructive dismissal principles. In doing so, this case cautions against unjustified suspensions and articulates the importance of employers maintaining a clear line of communication with employees and of acting in good faith and in an honest manner. Employers may also wish to consider, in certain circumstances, adding a suspension clause to their employment contracts in an effort to mitigate the risk of constructive dismissal claims in that context. Employers are also well-advised to familiarize themselves with their employees’ express terms and conditions of employment, and to consider whether the implementation of a particular term or condition would substantially alter the employment relationship and potentially trigger a constructive dismissal.