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  May 11, 2016

Supreme Court of Canada Expands Application of Constructive Dismissal Doctrine

In 2015, the Supreme Court of Canada revisited the law on constructive dismissal, which has had significant consequences for employers.

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In Potter v. New Brunswick Legal Aid Services Commission (2015 SCC 10), the case concerned Mr. Potter, the Executive Director of the New Brunswick Legal Aid Services Commission. Three years into his term, while Mr. Potter was on sick leave, the Commission suspended him indefinitely with pay and, without his knowledge, recommended his dismissal in a letter to the New Brunswick government.

Mr. Potter, a non-unionized employee, alleged that he was constructively dismissed and sued the Commission. The trial judge and the New Brunswick Court of Appeal dismissed his claim, finding that he had not been constructively dismissed and that, by launching the lawsuit, Mr. Potter had repudiated his contract and voluntarily resigned.

The Supreme Court later reversed the lower courts’ decisions and found that Mr. Potter was in fact constructively dismissed.

The Supreme Court’s decision re-affirmed a long-standing two-part test used to determine whether an employee has been constructively dismissed:

  • was there an express or implied contract term that has been unilaterally breached by the employer, and
  • did that breach alter a fundamental term of the employment contract?

In Mr. Potter’s case, the Supreme Court found that the employer had no reason to suspend him for administrative reasons and no express or implied authority to prevent him from attending work and performing his duties. The suspension therefore constituted a constructive dismissal of Mr. Potter.

The Supreme Court then went further, finding that an employer’s conduct can also constitute constructive dismissal if it shows that the employer intended not to be bound by the employment contract. This approach is retrospective and looks at the cumulative effects of the employer’s actions over time.

The Supreme Court concluded that an employee is not required to point to a specific substantial change in compensation, duties or other terms of employment. Rather, it is now sufficient to show that the course of conduct pursued by the employer demonstrates an intention to no longer be bound by the employment contract. Importantly, this test is measured, not by the intention of the employer, but by whether a reasonable person in the same circumstances as the employee would conclude that the employer no longer intended to be bound by the employment agreement.

This reasoning expanded the definition of constructive dismissal and has opened a door for employees who, in the absence of a specific change to the terms of their employment, argue that they have been constructively dismissed based on historical actions of the employer — actions which may be taken to demonstrate an intention not to be bound by the terms of an employment agreement.

Clearly, it’s important for employers to be aware of these changes and to be vigilant about actions which may later be taken to constitute constructive dismissal.

Information provided by Ryan Anderson, an employment lawyer with Mathews Dinsdale & Clark LLP. The information provided in this article is necessarily of a general nature and must not be regarded as legal advice. For more information about Mathews Dinsdale & Clark LLP, please visit mathewsdinsdale.com.

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