What Every Employee & Employer Needs To Know About Constructive Dismissal
A unilateral, material and significant change to the employment relationship can lead to a claim of constructive dismissal. Constructive dismissal happens when an employee resigns from their position because the employer has, without warning, materially altered the employment relationship or created such a hostile work environment that it is impossible for the employee to continue with their employment. Since the resignation is due to the material change or the hostility created, the employee is actually not voluntarily resigning from their position and the resignation is actually a termination, requiring reasonable notice. Failure to provide reasonable notice in this circumstance can lead to a claim for wrongful termination.
1. Unilateral, Material, Fundamental and Significant Changes
Not all changes to the employment relationship will result in a constructive dismissal. The change must be unilateral on the part of the employer, meaning that the employee was not consulted and did not agree to the change in working conditions before it was imposed upon them.
The change must also be material and significant to warrant a claim for constructive dismissal. Small changes to the employee’s role and their responsibilities are permitted by law, however, significant changes to the role are not. For example:
- a reduction in pay, including salary, commissions, bonus, benefits, etc.
- a demotion
- an employer refusing to allow or permit the employee to perform the conditions of their employment or complete the assigned tasks
- harassment, abusive behavior by the employer or by the employee’s superior
- being given the choice of accepting a significant change in the employment relationship or being terminated.
2. The Employee Must Take the Position that They Were Constructively Dismissed
In order to effectively claim constructive dismissal, the employee must take the position that they were, in fact, constructively dismissed and resign from their position immediately. This creates an interesting dynamic – the employee must quit in order to advance a claim that they were wrongfully terminated, but the onus is on the employee to establish that the conduct of the employer resulted in their dismissal and that they are, in turn, owed damages. This is a “roll of the dice” for an employee as the court may disagree with their claim and deny an award for damages for wrongful termination.
3. The Employee Must Mitigate Their Damages
As is the case in most civil claims, an employee who is claiming constructive dismissal and resigns from their position must take active and reasonable steps to mitigate their damages. This means that the employee must immediately start searching reasonable alternative employment. Failure to mitigate damages can result in a reduction of damages owed to the terminated employee, or even extinguishment of their claim in its entirety.
4. Working Notice
An employee, who wants to impose material, fundamental and significant changes to the employment relationship, can avoid claims of constructive dismissal and wrongful termination simply by providing the employee working notice of termination of their position. Working notice, which is permitted by law, allows an employer to advise the employee that their position will be fundamentally changed or eliminated completely and provide reasonable notice that as of an effective date their employment will be terminated. The amount of working notice required depends on a number of factors, including, but not limited to:
- whether there is a termination clause in the employee’s Employment Agreement;
- the age of the employee;
- the duration of the employment;
- the seniority of the employee and whether they are management or not; and
- the availability of alternative employment elsewhere; etc.
5. Termination and Re-Hiring
The Ontario Court of Appeal was the latest higher court decision on the issue of constructive dismissal. In their decision, the Court of Appeal held that the most reasonable approach for an employer faced with the need to fundamentally change an employment relationship is to provide the employee with reasonable notice of the change and that the position will be terminated as at an effective date. Then the employer should, where possible, offer the new position to the terminated employee as a means of permitting them to mitigate their damages.
This suggested approach has a two-fold effect. It extinguishes any potential claim for wrongful termination as reasonable notice was provided to the employee and it effectively allows the employee to mitigate any further damages by accepting a new, different position. If the employee refuses the new position they would likely be unable to claim further damages against the employer.
Scott Chambers is a lawyer at Doak Shirreff Lawyers LLP, practicing Employment and Human Resources Law and commercial litigation.