Constructive dismissal is one of the trickier elements of employment law. It is complicated because unlike the normal situation we think of where an employee is terminated, there is no formal notice of termination. Rather, the employer causes a termination through a demonstrated disregard for the terms of the employment contract. It can be difficult for an employee to know when such a termination has occurred.
In the recent case of Potter v. New Brunswick Legal Aid Services, the Supreme Court had the opportunity to provide some clarity where the test for constructive dismissal is concerned. While the test was articulated by the Court some eighteen years ago, it is has often been misapplied. The misapplication lies in Courts turning a two part test into a one-step analysis. First, a court must identify if an important contract term is not being followed by the employer and if so, it must determine whether or not this breach has substantially altered an essential term of the contract. In this step, the Court determines whether this act is allowed or implied by the employment contract If the Court finds that is not allowed, then it looks at how important the term is to the contract as a whole.
If this first part of the test is passed, then the court asks whether at the time the breach occurred, a reasonable person in the same situation as the employee would have felt that the employer was disregarding the terms of the contract without his or her consent.
The Potter case deals with a very interesting issue where constructive dismissal is concerned, that being where it arises in the case of a workplace suspension. This is an important lesson for employers because often times suspensions can be an important tool in workplace discipline in general and in meeting one’s obligations when carrying out a chain of discipline in order to eventually be able to terminate for cause. Under the first part of the constructive dismissal test, the Court looked at whether the suspension was reasonable or justified and whether it was for legitimate business reasons. It is important to note that in this case, suspensions were not authorized under the contract of employment. As such, there is a heavy focus on the justification for the suspension and whether the reasons for the suspension were properly communicated to the employee. Here, the employer was not at all forthright with the employee and provided him with no explanations respecting the suspension. The employer attempted to justify the suspension by pointing to the buyout negotiations that were ongoing between the parties at the time, however during the suspension, Mr. Potter, the employee, was replaced, and there was a move by the employer to terminate him. The Court found that the employer was not acting in good faith, meaning that the employer was not honest, reasonable, candid and forthright where the suspension was concerned. As such, the employee had been constructively dismissed. An employee should not be kept in the dark as to their employment status.
The take away here for employers is that if you are going to suspend an employee where the employment contract does not contain suspension provisions, you need to be very transparent where the reasoning is concerned. Those reasons must be legitimate and justifiable from a business perspective.
For employees, this case adds a bit more clarity to a situation in which constructive dismissal can be claimed. It also shows that claiming constructive dismissal is not simple. It is always a good idea to consult with an employment lawyer if you find yourself in such a situation.
For more information, please contact our Employment Law Lawyers at Merovitz Potechin LLP.