Supreme Court of Canada Confirms that There are Two Paths to Constructive Dismissal

Under what set of circumstances can a non-unionized employee claim to have been constructively dismissed?

In a recent decision from the Supreme Court of Canada, Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10, Canada's top court confirmed that there are two possible ways by which an employee can be constructively dismissed.

Facts

The case came out of New Brunswick; but the decision, coming from the Supreme Court of Canada, is applicable to Ontario. As set out in the summary of the case, the plaintiff employee, Mr. Potter was appointed as the Executive Director of the New Brunswick Legal Aid Services Commission for a seven-year term. In the first half of that term, the relationship between the parties deteriorated and they began negotiating a buyout of Potter’s employment contract. Mr. Potter took sick leave before the matter was resolved. Just prior to his return, and unbeknownst to Mr. Potter, the Commission wrote a letter to the Minister of Justice recommending that Mr. Potter’s employment be terminated for cause. The Commission’s legal counsel wrote to Mr. Potter’s lawyer on the same date, advising that Mr. Potter was not to return to work until further direction from the Commission. Before the conclusion of his sick leave, the Commission suspended Mr. Potter indefinitely with pay and delegated his powers and duties to another person. Mr. Potter claimed that he was constructively dismissed and commenced litigation. The Commission took the view that in doing this, Mr. Potter had voluntarily resigned. Both the trial judge and the Court of Appeal for New Brunswick found in favour of the Commission. Mr. Potter appealed to Canada’s top court.

Decision

Writing the majority decision on behalf of himself and Justices Abella, Rothstein, Moldaver, and Karakatsanis, the Honourable Mr. Justice Wagner provided the following overview to the issue of “constructive dismissal:”

[30] When an employer’s conduct evinces an intention no longer to be bound by the employment contract, the employee has the choice of either accepting that conduct or changes made by the employer, or treating the conduct or changes as a repudiation of the contract by the employer and suing for wrongful dismissal. This was clearly stated in Farber, at para. 33, the leading case on the law of constructive dismissal in Canada… Since the employee has not been formally dismissed, the employer’s act is referred to as “constructive dismissal”. The word “constructive” indicates that the dismissal is a legal construct: the employer’s act is treated as a dismissal because of the way it is characterized by the law…

[31] The burden rests on the employee to establish that he or she has been constructively dismissed. If the employee is successful, he or she is then entitled to damages in lieu of reasonable notice of termination. In Farber, the Court surveyed both the common law and the civil law jurisprudence in this regard. The solutions adopted and principles applied in the two legal systems are very similar. In both, the purpose of the inquiry is to determine whether the employer’s act evinced an intention no longer to be bound by the contract.

[32] Given that employment contracts are dynamic in comparison with commercial contracts, courts have properly taken a flexible approach in determining whether the employer’s conduct evinced an intention no longer to be bound by the contract. There are two branches of the test that have emerged. Most often, the court must first identify an express or implied contract term that has been breached, and then determine whether that breach was sufficiently serious to constitute constructive dismissal… Typically, the breach in question involves changes to the employee’s compensation, work assignments or place of work that are both unilateral and substantial… In the words of McCardie J., in In re Rubel Bronze, at p. 323, “[t]he question is ever one of degree”.

[33] However, an employer’s conduct will also constitute constructive dismissal if it more generally shows that the employer intended not to be bound by the contract. In applying Farber, courts have held that an employee can be found to have been constructively dismissed without identifying a specific term that was breached if the employer’s treatment of the employee made continued employment intolerable: see, e.g., Shah v. Xerox Canada Ltd. (2000), 2000 CanLII 2317 (ON CA), 131 O.A.C. 44; Whiting v. Winnipeg River Brokenhead Community Futures Development Corp. (1998), 159 D.L.R. (4th) 18 (Man. C.A.). This approach is necessarily retrospective, as it requires consideration of the cumulative effect of past acts by the employer and the determination of whether those acts evinced an intention no longer to be bound by the contract.

Thus, the Court determined, there are two paths to constructive dismissal. Either, the plaintiff employee must establish a “substantial” [the word “fundamental” has been changed to avoid any confusion with respect to the, now rebuked, doctrine of fundamental breach] breach of a fundamental term of the employment contract; or the employee must show that, based on a cumulative effect of past acts by the employer the employee may reasonably interpret the employment contract as being at an end.

With respect to the first, and more common approach to constructive dismissal, Justice Wagner wrote the following:

[37] At the first step of the analysis, the court must determine objectively whether a breach has occurred. To do so, it must ascertain whether the employer has unilaterally changed the contract. If an express or an implied term gives the employer the authority to make the change, or if the employee consents to or acquiesces in it, the change is not a unilateral act and therefore will not constitute a breach. If so, it does not amount to constructive dismissal. Moreover, to qualify as a breach, the change must be detrimental to the employee.

[39] Once it has been objectively established that a breach has occurred, the court must turn to the second step of the analysis and ask whether, “at the time the [breach occurred], a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed” A breach that is minor in that it could not be perceived as having substantially changed an essential term of the contract does not amount to constructive dismissal.

With respect to the second branch of, or what I have called “path to”, constructive dismissal, Justice Wagner wrote this:

[42] The second branch of the test for constructive dismissal necessarily requires a different approach. In cases in which this branch of the test applies, constructive dismissal consists of conduct that, when viewed in the light of all the circumstances, would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract. The employee is not required to point to an actual specific substantial change in compensation, work assignments, or so on, that on its own constitutes a substantial breach. The focus is on whether a course of conduct pursued by the employer “evince[s] an intention no longer to be bound by the contract”… A course of conduct that does evince such an intention amounts cumulatively to an actual breach.

Applying the facts, Justice Wagner made the following findings:

[46] Applying the principles discussed above to the facts of the instant case, I find that Mr. Potter was constructively dismissed by the Board. In light of the indefinite duration of the suspension, of the fact that the Commission failed to act in good faith insofar as it withheld valid business reasons from Mr. Potter, and of the Commission’s concealed intention to have Mr. Potter terminated, I respectfully find that the trial judge erred in concluding that the suspension was authorized by the contract of employment. Moreover, for the reasons set out below, I find that this breach of the contract amounted to a substantial change to the essential terms of the contract that was imposed unilaterally by the employer.

[47] With respect, I cannot agree with Cromwell J.’s assertion that this analysis is unnecessary or that constructive dismissal can be established on the basis of the second branch of the test. First, little, if any, support can be found for the position that a reasonable person in Mr. Potter’s situation would conclude that the suspension evinced an intention on the employer’s part no longer to be bound by the contract without addressing the question of whether the suspension was authorized. If the contract expressly or impliedly authorized the suspension in the manner in which it was carried out, this cannot contribute to the determination that a course of conduct amounted to a breach. The same is true of the buyout negotiations, which, as far as Mr. Potter knew, were being conducted in good faith. Moreover, although this is not central to Cromwell J.’s analysis, the Board’s letter to the Minister of Justice is not, in light of the discussion that follows, relevant to the analysis under this branch. The only relevant evidence is therefore the letter advising Mr. Potter that he would “continue to be paid until instructed otherwise”. I concede that this letter unnecessarily introduced some uncertainty into Mr. Potter’s employment situation. Nevertheless, a reasonable person in his situation could not have concluded on this basis that the Commission’s conduct evinced a clear intention no longer to be bound by the contract.

As will be laid out in my commentary below, respectfully I could not disagree more with Justice Wagner’s final comment that “a reasonable person in his situation could not have concluded on this basis that the Commission’s conduct evinced a clear intention no longer to be bound by the contract.”

The balance of Justice Wagner’s decision concerned whether the law that created Mr. Potter’s job (remembering that he worked for a government body) gave the Commission the power to administratively suspend Mr. Potter in the way in which it did. Justice Wagner ultimately concluded that it did not and that the same was sufficient to ground a finding of constructive dismissal.

In a concurring decision written by the Honourable Mr. Justice Cromwell, with whom the Chief Justice concurred, the Court took a slightly different view.

In resolving that Mr. Potter had been constructively dismissed under what Justice Wagner called the “second approach”, Justice Cromwell wrote the following:

[140] I do not find it necessary to decide whether Mr. Potter’s contract of employment permitted his employer to suspend him indefinitely with pay. Even assuming that it did, the suspension in this case, viewed as it must be in light of all of the surrounding circumstances and the correct legal principles, showed that his employer did not intend to be bound in the future by essential terms of the contract of employment. In short, the trial judge’s legal error led him into a palpable and overriding error of mixed law and fact.

….

[165] What were the surrounding circumstances and what was their legal relevance? The suspension occurred in the context of the Commission wanting to “buy out” Mr. Potter’s fixed term contract: trial reasons, at para. 43. As the trial judge put it, the Commission “made no secret that it wanted to negotiate a buy-out of Mr. Potter’s contract”: para. 40. The trial judge did not recognize that this intention to “buy out” Mr. Potter’s contract was consistent only with the Commission’s intention that Mr. Potter would leave his position before the end of his contractual term. The purpose of the buyout negotiations was to bring his contract of employment to an end through negotiation of a new contract on terms more favourable to the employer than Mr. Potter’s existing fixed term of employment. Moreover, as the trial judge found, the Commission did not want Mr. Potter to return to the workplace to ensure “that nothing would occur that might complicate the settlement negotiations”: para. 43. Once again, the trial judge failed to recognize that Mr. Potter’s indefinite suspension in the context of the buyout negotiations further underlined the Commission’s intention that Mr. Potter’s employment would come to an end otherwise than in accordance with his existing contract of employment. The suspension was of indefinite duration: the letter from the Commission’s counsel instructed that he not return to the workplace “until further direction”. Moreover, the letter gave no assurance that the Commission would in the future feel itself bound by the remuneration and benefit provisions of the contract of employment. The letter simply indicated that Mr. Potter would continue to be paid “until instructed otherwise”. The inescapable inference is that the Commission felt entitled to depart from the remuneration provisions of the contract at any time in the future.

[166] The surrounding circumstances therefore reveal the following: (i) the Commission wanted to bring Mr. Potter’s employment to an end before the expiry of the term of his contract; (ii) the Commission wanted him to stay out of the workplace indefinitely; and (iii) the Commission provided no assurances that it would continue to honour the remuneration terms of his contract in the future. Had the trial judge taken these surrounding circumstances into account, as the relevant legal principles require, rather than focusing simply on how serious a breach of contract the suspension was, he would inevitably have concluded that the Commission had evinced a clear intention not to be bound in the future by important provisions of Mr. Potter’s employment contract. As my colleague Wagner J. concludes, the Commission was not entitled to unilaterally impose a purported “administrative suspension” of this nature.

Commentary

Here is the frustrating part with respect to constructive dismissal, as set out by Justice Wagner in his reasons for decision:

[40] The kinds of changes that meet these criteria will depend on the facts of the case being considered, so “one cannot generalize”… In each case, determining whether an employee has been constructively dismissed is a “highly fact-driven exercise” in which the court must determine whether the changes are reasonable and whether they are within the scope of the employee’s job description or employment contract… Although the test for constructive dismissal does not vary depending on the nature of the alleged breach, how it is applied will nevertheless reflect the distinct factual circumstances of each claim.

This blog has looked at the issue of constructive dismissal on several occasions in the past. (For a list of those post see: “Constructive Dismissal.) A consistent takeaway from those posts is that it is almost impossible to say definitively whether the facts of any particular case will rise to the level necessary to make a finding of constructive dismissal. This fact is a concern to both employers and employees.

From a legal perspective it is positive to see the top court endorse the notion that two paths exist to constructive dismissal. Although Ontario has long recognized the idea that one need not demonstrate that a specific condition of employment has been breached, it is always helpful for the Supreme Court of Canada to give its stamp of approval.

With respect to the facts of the case and the disposition of the court, while I have to agree with both sides, I prefer the analysis of Justices Cromwell and McLachlin. In short, if one purpose of the Court’s decision was to expressly approve the notion of the two paths, why not use the second path to arrive at the decision. Moreover, how could one possibly say that “a reasonable person in his situation could not have concluded on this basis that the Commission’s conduct evinced a clear intention no longer to be bound by the contract”?

As Justice Wagner went on to observe, there is more to work than money. In this case, in my respectful view, the Commission very clearly signalled its intentions to no longer be bound by the terms of the contract; it told Mr. Potter not to come in to work. It wrote to the Minister of Justice asking that he be fired, for cause. This was an employer that did not wish to continue the contract if there ever was one.

In any event, I find myself agreeing with the decision, even if I do not wholly agree with the path employed by the majority of the Court. (That is not to say that I disagree with Justice Wagner’s analysis with respect to whether the Commission had the legal authority to administratively suspend Mr. Potter, what I am saying is that I believe Mr. Potter should succeed under both branches of constructive dismissal.)

Takeaways for Employees with Labour Pains

The takeaway for employees with labour pains is that you do not have to endure insufferable working conditions. If you believe that it is patently obvious that your employer no longer wishes to employ you, then you may have a case for constructive dismissal. However, as the Supreme Court’s decision and this blog’s commentary makes plain, before taking that position one should obtain a legal opinion. The facts of the case matter, and not every case of bad behaviour will be accepted by the court as “constructive dismissal.” On this point see, for example, the post Being Reasonable about Constructive Dismissal.

Takeaways for Employers with Labour Pains

There are a few takeaways for employers from this case. First, it would be prudent to always treat your employees with decency. As this blog has canvassed in a number of posts, and as the Supreme Court of Canada just confirmed, employers need not breach a specific condition of an employment contract to end it; the circumstances of employment taken as a whole can signal an employer’s intention to no longer be bound by the terms of the employment contract.

Next, employers should be using written employment contracts that contain specific conditions permitting fundamental changes to employment. As Justice Wagner observed in his reasons for decision, “If an express or an implied term gives the employer the authority to make the change, or if the employee consents to or acquiesces in it, the change is not a unilateral act and therefore will not constitute a breach.” If your business or organization is not using written employment agreements, it should be.

Finally, the key takeaway should be that before making any decisions concerning your employees’ employment, you should seek the advice of an experienced employment lawyer first. Constructive dismissal is confusing; you should not attempt to figure it out on your own.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.