Canada: The Building Blocks Of Constructive Dismissal

Last Updated: September 12 2012
Article by Emilie Paquin-Holmested

Generally when employees decide to leave their jobs, they are considered to have resigned. But if employees leave their jobs because the employer substantially changed essential terms of their employment contract, they are considered to have been constructively dismissed. The line separating these two notions is often unclear. It is especially so when terms of employment are changed following a corporate merger or integration. In a recent decision, St-Hilaire c. Nexxlink inc. (PDF - available only in French), the Court of Appeal of Quebec reviewed the building blocks of constructive dismissal in this very context.

In this case, Louis St-Hilaire, a vice-president at Nexxlink, left his job following the acquisition of the company by Bell. Following this transaction, certain aspects of Mr. St-Hilaire's employment contract were changed, such as his title, some of his responsibilities and certain aspects of his remuneration. On the day of his departure, he informed the president of Nexxlink that he was not resigning but rather considered that he had been constructively dismissed. He claimed more than $500,000 in damages.

Superior Court Decision

The Superior Court found that St-Hilaire had resigned. Applying the rule established by the Supreme Court of Canada in Farber (PDF), it explained that in order for there to be constructive dismissal, the court must find that the unilateral changes imposed by the employer substantially modified the essential terms of Mr. St-Hilaire's employment contract.  The court must look at it from the perspective of a reasonable person in the same situation as St-Hilaire. There must be an actual, substantial modification; not just an apprehension of such a modification.

The court found that although some of St-Hilaire's employment conditions had been modified following Bell's acquisition of Nexxlink, in this particular context the modifications did not justify his departure. The modifications did not affect the essential conditions of his employment. St-Hilaire's claim was denied.

Court of Appeal Decision

The Court of Appeal upheld the Superior Court's decision. It reiterated the four criteria required for there to be constructive dismissal:

  1. a unilateral decision by the employer;
  2. a substantial modification of the essential terms of the employment contract;
  3. the employee's refusal of the said modification; and
  4. the departure of the employee.

The appeal court noted that an employer can modify an employee's situation if the employment contract allows for it or if the employee agrees to it. The court went on to say that an employment contract is not stagnant and must allow for a certain amount of flexibility to adjust to new situations. An employer can make changes under its managerial authority. However, this is where the line gets blurry. In order to determine whether an employer has illegally modified an employee's terms of employment or has made changes under its managerial authority, the court must consider all of the circumstances of a case.

The court explained that in the case of an integration of companies, it is not surprising that an employee's responsibilities change. An employee cannot expect everything to remain the same in such a context. Furthermore, a period of uncertainty and adjustment is to be reasonably expected.

The appeal court also discussed an issue that had not been dealt with by the Superior Court. When Bell acquired Nexxlink, St-Hilaire's options to purchase Nexxlink's shares were cancelled without compensation. This represented an important reduction in his remuneration. And when St-Hilaire decided to leave Nexxlink, he could not have foreseen that his options would be replaced by a bonus programme. However, the court found that, because St-Hilaire only raised this issue in his court motion, and not in his previous correspondence regarding his alleged constructive dismissal, and because St-Hilaire left the company a month and a half after having been informed of the cancellation of his options, St-Hilaire did not consider this element to be an essential term of his contract.  He did not leave for this reason.

Although St-Hilaire's employment conditions had been modified following Bell's acquisition of Nexxlink, the court found that the changes that occurred did not affect the essential elements of his employment contract. Therefore, St-Hilaire had not been constructively dismissed. He resigned.

Take Away for Employers

This case is an excellent review of the elements of constructive dismissal. It reminds us that employers do have, in certain circumstances, the managerial authority to modify conditions of employment. However, modifications must always be analyzed in their particular context in order to ensure that they do not trigger a constructive dismissal.

In the event that you intend to signficantly modify employees' conditions of employment, it is prudent to obtain legal advice as to whether such modifications substantially modify the essential terms of their employment. If not, this should be pointed out when you inform them of the modifications.

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.

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