Employers operating in Canada can discover fairly quickly that there’s a high bar to justify firing an employee for just cause. And without just cause, employees are entitled to reasonable notice of dismissal – or pay in lieu – that can be surprisingly large for employers who may not be familiar with Canadian statutory minimums or common-law reasonable notice. It can be a frustrating thing for employers to deal with, so they might be even more surprised to realize they could be on the hook for dismissal damages, even if there hasn’t been an official firing.
Even when there hasn’t been a formal termination, an employer’s actions can lead to constructive dismissal. This happens when an employer’s actions amount to a repudiation of the employment contract or unilaterally change a fundamental term of the employment contract. The Supreme Court of Canada has recognized that constructive dismissal can come from a single, unilateral act by the employer that breaches an essential term of the employment contract, or a series of acts that show that it no longer intends to be bound by the employment contract. In either case, it can bring the employment relationship to an end if the employee isn’t provided with consideration for the change, such as more money or perks.
So what can lead to a constructive dismissal? There are a few ways it can happen. Common examples include: a unilateral change to an employee’s job duties or reduction in influence; a significant reduction in the employee’s hours of work and/or compensation (including small changes over time with a cumulative effect); threats of demotion or discipline without a legitimate reason; a temporary layoff; and a negative change in working conditions making the job intolerable.
Workplace changes
Many workplaces are frequently changing and evolving, so employers in Canada need to be alive to the idea of constructive dismissal when considering making moves. Even without intent, an employer could create a situation where it could be liable for damages similar to if it had wrongfully dismissed someone.
For example, in one Ontario case – Damaso v. PSI Peripheral Solutions Inc. – an employer’s business evolved over time and it added the duties of another position to an employee’s existing responsibilities. The problem was, the employee’s duties were set out in his written employment contract. When the employee felt overwhelmed and asked for a pay raise, the employer declined and hired an independent contractor. A short time later, the employer removed his access to its internal computer system, which he needed to do his work.
The employee was given notice of termination and he successfully sued for constructive dismissal, getting 12 months’ pay in damages in lieu of reasonable notice after 10 years of service.
Constructive dismissal can also occur if the worker’s duties are diminished or removed. In a case out of British Columbia – Kurik v. CAS Ventures Ltd. – an employee was removed from a worksite when the company from which the employer was subcontracting work asked for the employee to be removed. The employee was left in limbo for several weeks while the employer tried to get the worker allowed back, but to no avail. A court ordered the employer to pay the employee two months’ salary in damages – after he had worked for one month – because leaving the employee without work and not terminating his employment amounted to constructive dismissal.
Significant pay cut
Employers can be faced with tough budgetary decisions, but can they cut employees’ pay and successfully maintain the employment relationship without legal consequences? In Kosteckyj v. Paramount Resources Ltd, an Alberta employer was found to have constructively dismissed an employee when it reduced his pay by 16-to-20 per cent as part of a company-wide cost reduction during the pandemic. The employee didn’t specifically accept or reject the pay cut, and the employer was ordered to pay the worker nine months’ pay in lieu of notice for 6.5 years of service.
The above case raises the question of how significant does a pay reduction have to be to constitute constructive dismissal? As with many aspects of Canadian employment law, there isn’t a concrete answer that will always apply, but some decision-makers have considered the threshold to be around 10 per cent.
Temporary layoffs
One element of constructive dismissal that frequently trips up employers in Canada is around temporary layoffs. While these aren’t uncommon in Canada, many employers think they’re able to implement them whenever they need to. However, it’s a recognized principle in Canadian employment law that temporary layoffs are only permissible if they’re specifically provided for in the employment contract or the employer has a regular past practice. Unionized workplaces that have collective agreements allowing layoffs and seasonal industries with regular layoffs for the off-season are generally fine. But for others, layoffs can be a repudiation of the employment contract and, therefore, lead to constructive dismissal.
This can be particularly confusing for employers, because in many Canadian jurisdictions, temporary layoffs are contemplated by employment standards legislation. However, in the common law, they aren’t allowed without express permission in the employment contract.
As an example, consider the Alberta case of Certified Redi-Mix Concrete Group v. L’Hirondelle, in which a non-unionized employee at a concrete plant was laid of for one month, which was later extended to three months. He was asked to give up his company cellphone and laptop and was later assigned to a new position that amounted to a demotion and was seasonal work. An employment standards tribunal determined that the layoff and changes in his duties and pay was constructive dismissal.
However, a key element of constructive dismissal is whether the employee accepts or rejects the changes. If, after a reasonable amount of time, the employee doesn’t raise any concerns, they will be considered to have accepted the changes and can’t later claim constructive dismissal. There isn’t a set amount of time required to consider it an acceptance, but reasonableness in the circumstances is the threshold.
If they reject the changes, then the employer has the option of terminating their employment without cause with reasonable notice, or revoke the changes.
One possible reason for a sigh of relief – courts have found that employers can provide reasonable notice of a significant change to a term of employment – similar to what would be common-law reasonable notice of termination – and, if the employee rejects it, their employment would end after the notice period elapsed.