Hamilton Employment Lawyer: Constructive Dismissal

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What is constructive dismissal?

The termination of a job can take many different forms, not just that of a “direct dismissal.” In Canada, constructive dismissal occurs when an employer unilaterally makes a fundamental change to an employee’s terms or conditions of employment, and as a result, the employee feels compelled to resign. These changes may include a significant reduction in pay, demotion, change in job responsibilities, or a hostile work environment that makes it unbearable for the employee to continue working.

Constructive dismissal is a complex area of employment law in Canada, and courts will consider various factors to determine whether a constructive dismissal has occurred. Some of these factors include the nature of the change, the employee’s length of service, and whether the employee had accepted or acquiesced to the changes.

An employee who has been constructively dismissed may be entitled to compensation, including severance pay and damages for wrongful dismissal. However, it’s important for employees to seek legal advice before resigning, as it can be challenging to prove constructive dismissal in court.

Have you been constructively dismissed from your job?

When you sign a contract to work for an employer, it is an implied term of that employment contract that your employer will not make any major changes in the duties and status of your employment so as to constitute a “fundamental breach of the contract” you both agreed to.

When an employer decides to unilaterally make substantial changes to the essential terms of your contract of employment, and you do not agree with those changes, a constructive dismissal can occur. By seeking to make substantial changes to the essential terms of your employment contract, your employer is ceasing to meet its obligations promise to you and is, therefore, terminating the contract.

However… alleging constructive dismissal is not an easy task.

The employer’s actions must be “fundamental” for a constructive dismissal to exist – and not a minor or incidental issue.  In each case, it is a question of what are the terms of the contract, whether there has been a breach, and, if there has been a breach, whether it amounts to a fundamental breach.” In other words, it must be a change that goes to the “root of your employment contract”.

How does a court determine if I have been constructively dismissed?

Essentially, a Judge must ask whether, at the time the changes were made, a a reasonable person in the same situation as you would have felt that the essential terms of the employment contract were “substantially changed”. Determining whether you have been constructively dismissed is very fact-driven. The test for constructive dismissal does not vary depending on the nature of the breach, but the application of the test will reflect the unique factual elements of your particular case.

If you fail to prove constructive dismissal, a court will find that you have quit the employment relationship through your own resignation, and no wrongful dismissal damages will follow.

Who has the burden of proving that I’ve been constructively dismissed?

You, as the employee, have the full burden of establishing that you have been constructively dismissed. Not your employer.

If a court finds that I have been constructively dismissed, how am I compensated?

Essentially, if constructive dismissal is found, damages are assessed in the same manner as they are for terminations or dismissal –  i.e. you will be entitled to wrongful dismissal damages. Typically, wrongful dismissal damages are generally calculated from the date of the employer’s breach of the terms of your employment contract, as opposed to the date on which you object to a change or resignation.

How Important is Mitigation?

All employees claiming damages from an employer must try their best to mitigate his or her losses by looking for alternate equitable employment with good and consistent effort. Employers bear the burden of proving an employee’s failure to mitigate in order to reduce the reliability.

In certain circumstances, this duty may require the employee to remain at the workplace and work under the new terms of the employment contract while seeking alternative employment instead of resigning. For example, in the recent case of Gent v. Strone, an employee was laid off and took the position that he was constructively dismissed.

Like many other cases, when layoffs happen and constructive dismissal is alleged, employers will respond by recalling the employee to work. Mr. Gent was recalled back to work but refused, claiming that the employee-employer relationship was broken down irreparably.

The issue was then whether or not the plaintiff’s refusal to return to work was a failure to mitigate his losses. The plaintiff claimed that it would be humiliating for him to return to work, but the court didn’t agree. They found that Gent was being unreasonable. Because he could not explain why he thought it humiliating to return to work and that he completely ruled out the possibility of returning to work even though he knew that he could’ve been recalled – he was unsuccessful in his case.

It’s not always the case that an employee be returned to work when recalled – but rather, the question is where an employer offers an employee a chance to mitigate damages by returning to work for him, the central issue is whether a reasonable person would accept such opportunity so long as the working conditions are not substantially different, the work to meeting or personal relationships involved are not acrimonious. It would not be reasonable for an employee to return to work when recalled if that employee would be subjected to working in an atmosphere of hostility, embarrassment or humiliation.

In any event you NEED to continue looking for work (when you are ready). It is essential to try and make your position better and detrimental if you do not.

What is considered a “unilateral change” to my employment contract?

Firstly, in order to establish a constructive dismissal claim, you have the onus of proving that your employer unilaterally changed the fundamental terms of your employment contract. The change will not be considered unilateral if the change is within the scope of the terms of your employment contract, as you might have agreed to that term when you entered into your employment contract – and – if you accept your employer’s change.

Secondly, it must be established that the breach was fundamental or substantial. Whether the breach was substantial is assessed from the perspective of a reasonable person in the same situation as the employee. A court will ask whether a reasonable person in the same situation as you would have felt that the essential terms of your employment contract were being substantially or fundamentally changed. Your own subjective view is not determinative, where objective evidence exists to the contrary.

What does a “substantial” change to my employment contract actually mean?

A substantial breach occurs when a change to a fundamental term of the employment contract is so significant that the employer is considered to be ceasing its obligations under the contract and is therefore considered to be terminating the contract of employment.

A minor change to the employment terms may give rise to damages for breach of contract but will not amount to constructive dismissal; the employment contract will continue to exist.

Whether a unilateral change is a substantial and fundamental breach of your employment contract depends upon the following:

• The nature and degree of the change. What term of the employment contract is being changed? How severe is the change? How often has it occurred?
• The intention of the parties
• The particular circumstances surrounding the change

What are some examples of constructive dismissal?

You are entitled to take the position that you have been constructively dismissed in response to any major changes to your employment contract.

Examples of these major changes have been held to include the following:

Forced resignation – a demand for an employee’s resignation has generally been regarded as constituting a constructive dismissal. The onus of proving that a resignation is voluntary lies with the employer.

Demotion – a demotion can be deemed a constructive dismissal. For example, the demotion of the plaintiff from a senior managerial position to a non-managerial position can be considered a fundamental change in the employment contract and constitute a constructive dismissal.  Our Supreme Court has commented on the issue of demotion by holding that if an employee is demoted and it appears at the time of the demotion that the employee will earn less income, a constructive dismissal has occurred.

Reduced pay or refusal to pay – A significant reduction in wages or a change in the method of calculating the employee’s compensation will result in constructive dismissal. Not every change in an employee’s remuneration will constitute a constructive dismissal, however.  Any analysis of a change to the employee’s compensation should begin with a review of the terms of the employment contract. Here are some examples of real cases involving reduced compensation which were held to be substantial and resulted in constructive dismissal:

• A reduction of 14% to 17% of compensation through a salary freeze and changes to an incentive plan, in combination with a change in job duties (Doran v. Ontario Power Generation Inc)
• A reduction of salary of 25%, together with the removal of a company car (Brown v. OK Builders Supplies Ltd)
• A reduction in the rate of commission from 45% to 30% (Naçu v. Watmec Ltd., 2003 CarswellOnt 3032 (Ont. S.C.J.)).
• A reduction of commission from 18% of profits to 9% of profits (Evangelista v. Number 7 Sales Ltd)
• A reduction of salary from $250,000 to $150,000, together with a reduction to part-time hours (Davies v. Canadian Satellite Radio Inc)
• A reduction of salary from $114,000 to $60,000, together with the removal of a bonus (Russo v. Kerr Bros. Ltd)

Major Change in job responsibilities – alleging constructive dismissal due to a change in job duties can be a difficult argument. An employer who is acting in good faith to protect business interests may reassign the employee to a new position or new job duties in appropriate circumstances.   However, an employer is not entitled, without notice, to vary the terms or conditions of employment so that they are no longer the terms under which the employee had agreed to work. Absent a term to the contrary, an employee will not be obliged to accept a job alteration that requires the employee to perform a substantially dissimilar function or that completely changes the nature of his duties. The primary issue to analyze in order to determine whether there has been a significant change in job responsibilities is the nature and content of the employment contract. If a person is employed to fill a particular function, he or she cannot be transferred to a dissimilar function.

Forced transfer – Generally, a company has the right to transfer an employee. It’s been said by our Courts that employees must expect reasonable dislocations within employment, including the place where it is to be performed.

Where there is no right to transfer under the employment contract, constructive dismissal may arise if the employer insists on the transfer but the employee does not agree to the change.

Where there is a real right to transfer that is considered to be a term of the employment relationship, the employer may rely upon the employee’s refusal to transfer as just cause to terminate the employment relationship or as an abandonment or resignation of employment

Abusive treatment  – Abusive treatment has becoming an increasingly accepted ground for making a claim of constructive dismissal. In determining whether abusive treatment of the employee is tantamount to a constructive dismissal, some courts have held that the conduct of the employer must be so obscene as to amount to a repudiation of the employment relationship.

Courts have held that the following were sufficient to support a claim for constructive dismissal:

• harassment
• repeated yelling
• repeated screaming
• the use of vulgar language
• profane language
• inappropriate insinuations and
• a hostile work environment which results from continual use of foul language and abusive conduct constitutes a constructive dismissal.

The courts have also found constructive dismissal where the employer’s conduct makes continued employment intolerable. The Newfoundland Court of Appeal rightly stated that:

. . . abusive treatment, which would include harassment of an employee by co-employees, and particularly where these co-employees occupy senior or supervisory positions to the employee, can be construed as a variation of a fundamental term of a contract of employment such as to constitute a repudiation of the contract by the employer.

Reduced work hours, unpaid overtime, etc. – A unilateral change in hours of work, by itself or in conjunction with other changes, may constitute a constructive dismissal. Hours of work may be a fundamental term of the employment contract, particularly when they are specifically stipulated in a written employment contract.  For example – An employee who worked regular office hours was required to work evenings and weekends, a full-time employee reduced to part-time hours, or an employee who had flexibility in choosing their hours of work was required to work fixed hours were found to constitute constructive dismissal.

Layoffs – In the absence of any contractual provisions to the contrary, lay-off by the employer can be found to be a repudiation of the contract of employment.

Have you been constructively dismissed? Talk to our Hamilton employment lawyers today.

Remember, an employer may terminate the employment relationship expressly by giving termination notice, termination pay, payment in lieu of notice, etc. or through constructive dismissal. A constructive dismissal will occur when your employer demonstrates an intention, by way of a unilateral decision, to no longer be bound to the employment contract.  Our Hamilton Lawyers will be able to advise you whether or not a fundamental breach by your employer of a major term of your employment relationship allows you to take the position that you have been constructively dismissed. If your employer has made obvious, major and substantial changes to the root of your employment contract, which has affected your duties and status, we may be able to help. Call us at 905-333-8888 to discuss your constructive dismissal issue today. Alternatively fill in a contact form that we will get back to you as soon as possible.

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