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What is Constructive Dismissal?

A constructive dismissal is a fundamental change to the employment relationship that goes to the heart of the employment contract, and, in effect, is a repudiation of the original employment contract and therefore tantamount to a termination of employment.  An employer found to have constructively dismissed an employee will be deemed to have terminated their employment and be required to provide a severance package.

Minor changes to the terms of employment will not be sufficient to be considered a constructive dismissal. If an employee has resigned from their employment, claiming that they have been constructively dismissed, and then a Court finds that in fact, the change to the employment contract was not fundamental, the employee will have resigned away its right and not be entitled to a severance package.

In Potter v. New Brunswick Legal Aid Services Commission, the Supreme Court of Canada identified two circumstances when a constructive dismissal occurs:

  1. when the employer’s single unilateral act (such a demoting the employee) breached the employment contract in a manner that substantially altered the essential terms of the contract; and
  2. when the employer’s ongoing conduct demonstrates an intention to no longer be bound by the employment contract, from the perspective of the reasonable person.

The most common changes to the employment relationship that result in a constructive dismissal include but not are limited to:

  • significantly reducing the employee’s compensation;
  • demoting the employee, reducing the employee’s job responsibilities or changing the employee’s reporting relationships;
  • requiring the employee to move to a different geographic location;
  • requiring the employee to work in a poisoned work environment (i.e. work in an environment where the employee faces ongoing harassment, discriminatory conduct or improper employer discipline);
  • failing to pay the employee; or
  • laying off the employee.  At common law, an employer does not have an automatic right to lay off a non-unionized employee unless the right to layoff is provided for in the employee’s employment contract.

If your employer has implemented a fundamental change to your employment, please contact our employment law firm to determine whether the circumstances around the change amount to a constructive dismissal of your employment and thereby entitling you to a termination package.