These 5 Tips Will Help You Avoid A Constructive Dismissal Claim
As technology advances, many companies are open to giving their employees the flexibility to work from home.
But what happens when you want to start bringing employees back into the office?
According to one recent Ontario case, employers may risk significant liability in the form of a constructive dismissal claim.
What is constructive dismissal?
Constructive dismissal claims arise in two situations.
The first is where an employer unilaterally changes an essential term of the employment agreement in a substantial way. These changes typically revolve around compensation, work location, and demotion that reduces an employee’s duties, responsibilities, or status, or alters their reporting relationships.
Constructive dismissal can also arise when an employer makes an employee’s work conditions intolerable, such as through workplace harassment or discrimination.
How can revoking a work from home agreement constitute constructive dismissal?
Let’s look at the facts and decision of a recent case before the Ontario Superior Court.
In Hagholm v. Coreio Inc., an employee worked several years for her Toronto-based employer before resigning on moving to Waterloo, Ontario. After two more years of contract work, the employer offered her full-time employment on the basis that she could work three days a week from home. The employee accepted, and performed in a managerial capacity for over two decades.
When new ownership took over, the employer alleged that the employee’s performance declined and put the employee on a performance improvement plan. The employer then revoked her right to work from home. The employee filed a claim for constructive dismissal.
The Ontario Superior Court found that:
- Working from home three days a week was an essential term of the employment contract;
- The employee’s home was far from the office, so the requirement of being in the office constituted a substantial change; and
- The employer breached an essential term of the employment agreement by unilaterally revoking the plaintiff’s ability to work from home), and thus constructively dismissed the employee.
The employee was awarded 22 months of salary in lieu of notice, compensation for reduction of her last bonus, and compensation for the benefits lost during that notice period.
How can an employer protect itself from a constructive dismissal claim?
#1. Include terms in the employment agreement that give you the right to make certain unilateral and fundamental changes.
This allows you the flexibility to change the employee’s work location, duties, pay structure, benefits, position, title, and reporting structure – without the risk.
#2. Enter into a new employment agreement based on the revised terms of employment.
If your employee signs off on the changes in writing, it’s no longer a unilateral change. Keep in mind that you will need to provide new consideration in exchange for the revised terms for it to be considered a new agreement. Consideration can be of anything of value: new benefits, a raise, a promotion, a bonus, etc.
#3. Terminate employment and offer the employee mitigation employment.
An employee claiming constructive dismissal is required to take reasonable steps to mitigate his or her losses by looking for new employment. The duty to mitigate may require the employee to consider a reasonable offer of re-employment. So ask the employee – in writing – to return to work under the revised terms. If the employee refuses, you may be able to argue that the employee failed to mitigate his or her damages and isn’t entitled to wrongful dismissal damages.
#4. Where you need to make a unilateral and fundamental change, give the employee reasonable, clear, and unambiguous notice.
Reasonable notice is the same notice period that you would provide if you were terminating the employee. At the end of the notice period, the employee’s employment will continue subject to the changed terms of employment.
How can employees protect themselves?
#1. Do not sign an employment agreement that gives the employer the right to unilaterally change core aspects of the relationship.
By default, core terms cannot be changed substantially. Do not allow the employer to give themselves carte blanche to do so.
#2. Ensure that your contract of employment clearly sets out all of the terms that you are counting on.
We are often asked to review job offers, and we always ask whether there is anything that the individual is expecting that is not referenced in the agreement. Surprisingly, they often say yes. Often, this relates to signing bonuses or the ability to work from home. If it is not set out in the agreement, it is easy for the employer to make the change and deny that it was part of your contract.
#3. Do not accept changes to the terms of your relationship.
In order to pursue a claim for constructive dismissal, you must make your objection known. Remaining silent can often suggest acceptance, and courts are reluctant to penalize an employer when you did not give them any indication that there was an issue.
#4. Do not resign
Sometimes, employees just “give up” and resign rather than enforce their rights. And in some cases, that is exactly what the employer wants; they may decide to make the employee’s life miserable until they quit. Rather than doing so, the employee should clearly express their objection and then pursue a constructive dismissal claim if it is not addressed satisfactorily.
#5. Seek the advice of an employment lawyer.
Employers expose themselves to significant liability by falling into traps when they terminate employees or make changes to fundamental terms of the employment agreement. An experienced and highly skilled employment lawyer can ensure your legal obligations are met to help you avoid a possible constructive dismissal claim.