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| If an employer alters a fundamental term or condition of employment, both employer and employee must proceed with caution. |
According to the leading Supreme Court of Ca nada decision on constructive dismissal, Farber v. Royal Trust Co. [1]:
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. Such action amounts to a repudiation [rejection] of the contract of employment by the employer whether or not he intended to continue the employment relationship. Therefore, the employee ca n treat the contract as wrongfully terminated and resign which, in turn, gives rise to an obligation on the employer’s part to provide damages in lieu of reasonable notice.
Note that the Supreme Court was referring to an “employment contract” in the broadest sense of the concept, as in the terms governing a particular employment relationship whether or not those terms are actually contained within a written contract. I will be using the same meaning of “contract” in this post.
What constitutes a “unilateral and fundamental change” depends on the terms of each employment contract, and, therefore, no hard and fast rules ca n be applied. The following is a non-exhaustive list of actions that an employer might take and which are frequently considered by the courts to be “unilateral and fundamental changes” giving rise to constructive dismissal depending upon the unique circumstances of each case:
1. Reduction in pay of 10% or more
2. Temporary layoff
3. Relocation
4. Demotion
5. Workplace bullying
6. Forced resignation
7. Unpaid suspension
8. Denial of benefits (if benefits were promised by the employer)
If an employee believes that he or she has been constructively dismissed then, according to the 2008 decision of the Ontario Court of Appeal in Wronko v. Western Inventory Service Ltd.[2], the employee has three options:
Secondly, the employee may clearly communicate to the employer that he or she rejects the change in the terms of employment. If the employer persists and makes the change anyway, then the employee may sue for damages and not return to work for the employer.
Thirdly, the employee may clearly communicate to the employer that he or she rejects the change and demand the enforcement of the original term or terms. The employer can respond by terminating the employee’s employment, but only after proper notice or pay in lieu of notice is provided, and then offer employment on fresh terms. Alternatively, if the employer allows the employee to continue to be employed then the employee can still insist that the employer is bound by the terms of the original contract until proper notice or pay in lieu of notice is provided to the employee.
In 2010, as a result of an Ontario decision ca lled Russo v. Kerr Bros. Ltd.[3], a constructively dismissed employee was granted a fourth option: The employee ca n clearly communicate to the employer that he or she will not accept the unilateral change imposed by the employer but, instead of leaving the workplace, the employee may stay on the job while suing the employer for damages.
It is important to note that like all terminated employees, a constructively dismissed employee is obligated to mitigate his or her damages. In other words, the employee must make reasonable efforts to locate alternate employment. In fact, according to a 2008 decision of the Supreme Court of Canada in Evans v. Teamster Local Union No. 31 [4],
….in some circumstances it will be necessary for a dismissed employee to mitigate his or her damages by returning to work for the same employer. Assuming there are no barriers to re-employment….requiring an employee to mitigate by taking temporary work with the dismissing employer is consistent with the notion that damages are meant to compensate for lack of notice, and not to penalize the employer for the dismissal itself….Where the employer offers the employee a chance to mitigate damages by returning to work for him or her, the central issue is whether a reasonable person would accept such an opportunity. In 1989, the Ontario Court of Appeal held that a reasonable person should be expected to do so "[w]here the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious".
In light of the Evans decision, a constructively dismissed employee must be cautious before exercising the second option described above.
Finally, there is a fifth option. However, it is not a good one. When faced with what the employee believes to be a constructive dismissal, an employee can simply resign. However, by doing so, the employee may be severely compromising any claim for damages against the employer.
Constructive dismissal is one of the more uncertain areas of employment law. An employer wishing to impose a unilateral change to an employee’s terms of employment would be wise to obtain legal advice before moving forward in order to minimize the chances of a successful claim by a disgruntled employee for damages for wrongful dismissal. Similarly, an employee who is faced with such a unilateral change needs to move quickly, with the assistance of a lawyer, in order to properly exercise one of the options available to him or her in the face of a possible constructive dismissal.
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[1] [1997] 1 S.C.R. 846, 145 D.L.R. (4th) 1.
[2] 292 DLR (4th) 58 (Ont. C. A.), leave to appeal to S.C.C. refused 295 D.L.R. (4th) vii.
[3] 2010 Ca rswellOnt 8373 (S.C.J.).
[4] [2008] 1 SCR 661, 292 DLR 4th 577.
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