When one thinks about constructive dismissals, unilateral pay cuts and demotions typically spring to mind. But is a paid administrative suspension in a non-unionized workplace a constructive dismissal? According to the Supreme Court of Canada, the answer to this question is "Maybe" depending upon the circumstances.

In Potter v. New Brunswick, 2015 SCC 10 (Potter), the employer unilaterally placed its Executive Director on an indefinite paid suspension while the parties negotiated a buy-out to his seven-year statutory appointment.  The employer delivered the news to Potter approximately one week prior to his scheduled return to work from an approved medical leave.  Unbeknownst to Potter, at the time the employer communicated the suspension news, the employer had, among other things, already planned to terminate his employment for just cause if a buyout was not agreed to.  Shortly after receiving the suspension news, Potter resigned from his employment and pursued a constructive dismissal claim. 

The Supreme Court of Canada agreed with Potter, finding that the employer did not have the authority to suspend him with pay for the reasons it provided and awarded Potter damages for wrongful dismissal. 

In finding that the employer had constructively dismissed Potter from his employment, the Supreme Court of Canada confirmed that:

  • the standard for establishing a constructive dismissal remains the same— a constructive dismissal will only exist if a reasonable person in the employee's situation would interpret the employer's actions as showing an intention to no longer be bound by the employment contract with the employee;
  • only substantial changes to the employment contract that are detrimental to the employee will constitute a constructive dismissal;
  • if an express or implied term in the employment contract already gives the employer the right to make the change, or if the employee consents or acquiesces to the change, then no constructive dismissal exists;
  • whether a paid administrative suspension amounts to a constructive dismissal depends upon whether an express or implied term of the contract authorizes the suspension and, if not, whether the suspension could reasonably be perceived as having substantially changed the essential terms of the contract; and
  • an administrative suspension imposed in good faith to protect the employer's legitimate business interests that have a minimal impact on the employee in terms of duration will not constitute a constructive dismissal;
  • an administrative suspension that is neither reasonable nor justified can amount to a constructive dismissal.

In Potter, the indefinite duration of the suspension, the employer's failure to act in good faith by withholding valid business reasons from Potter, and the employer's concealment of its intention to terminate his employment, were fatal to the employer's defense.

It remains to be seen how adjudicators will apply Potter.  Although the decision is unlikely to affect paid suspensions reasonably imposed as part of a legitimate disciplinary investigation, there may be other circumstances that adjudicators will find less clear and this may lead to increase constructive dismissal findings. 

Non-unionized employers wishing to limit their liability as much as possible should consider incorporating express terms in their employment policies and contracts giving them the right to suspend employees for disciplinary and administrative reasons and then only exercise that right when it is reasonable and justified.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.