Canada: SCC Clarifies Constructive Dismissal And Employee Suspensions

A new Supreme Court of Canada decision provides guidance with regard to constructive dismissals and employee suspensions. In particular, employers must provide a business justification for administrative suspensions with pay or risk being deemed to have constructively dismissed the suspended employee. 

Constructive dismissal arises when an employee who has not been expressly terminated claims the employer's actions amount to a repudiation of the employee's employment contract. These cases result in a claim for pay-in-lieu of termination notice, and sometimes, depending on the severity of the employer's actions, aggravated damages. 

In a non-unionized employment context, employee suspensions often create uncertainty as to whether the employer has authority to suspend the employee or whether the suspension amounts to constructive dismissal.

While the Supreme Court of Canada's (the SCC's) latest decision and comments do not answer all questions or provide any new rights with regard to constructive dismissal and employee suspensions, they provide a new analytical framework and some clarity on these topics, which is important because the stakes are often life-altering when an employee claims constructive dismissal—a big pay out or a deemed voluntary resignation.

Background

In Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 ("Potter"), the employer suspended an employee with pay indefinitely while the parties negotiated a buyout of the employment contract just prior to the employee's return from sick leave. The employee claimed the suspension constituted constructive dismissal and commenced litigation. The employer submitted that the employee's actions in withdrawing from negotiations and suing the employer amounted to voluntary resignation.

Both the trial court and the appellant court agreed with the employer, determining that the employee had resigned and was not constructively dismissed. However, the SCC granted the appeal in a 7-0 decision, with two judges providing separate concurring reasons. The SCC determined the employer neither had express authority to suspend the employee, nor provided a reason why he was suspended. The suspension was therefore not reasonable and justified, and constituted a constructive dismissal.

Constructive Dismissal

The SCC stated in Potter that constructive dismissal can take two forms:

  1. a single unilateral act by the employer that breaches an essential term of an employee's employment contract; or 
  2. a series of acts by the employer that, taken together, show the employer no longer intends to be bound by the employment contract.

The first form (or "branch") of constructive dismissal requires an analysis of the employee's contract, and typically arises when the employer unilaterally changes an employee's compensation, duties or place of work. When this occurs, the employee must prove on a balance of probabilities that: (i) the employer breached an express or implied term of the employee's contract, and (ii) the breach substantially altered an essential term of the contract.

The second branch occurs when the employer's actions indicate the employer no longer intends to be bound to the employment contract. The second branch does not involve a breach of the contract; rather, it arises when the employer's conduct makes continued employment intolerable for the employee. The courts must take a retrospective approach and consider the cumulative effect of past employer actions on the employee. The test to be applied is whether, in light of all the circumstances, a reasonable person would conclude that the employer no longer intended to be bound by the terms of the contract.

In both first and second branch cases, the employer's perceived intention to no longer be bound by the employment contract gives rise to the breach.

Non-Unionized Employee Suspensions

The SCC stated in Potter that an employee suspension is not wrongful if the employer had the express or implied authority to suspend the employee. Where the employer imposes an administrative (or non-disciplinary) suspension on an employee, the first branch of the constructive dismissal analysis is modified.

The onus shifts to the employer to prove on a balance of probabilities that the employer had express or implied contractual authority to impose the suspension. If the employer proves it had express contractual authority to suspend an employee, the suspension may not be deemed to be a breach of the contract. For the employer to prove it had implied contractual authority to suspend the employee, it must demonstrate that the suspension was reasonable and justified.

The SCC chose not to create a rigid framework for determining whether a particular suspension is reasonable and justified. Each case depends on the nature and circumstances of the suspension. However, the SCC presented factors to consider when determining if a suspension under an implied authority is reasonable and justified:

  • the duration of the suspension; 
  • whether the suspension is with pay; and 
  • whether the employer demonstrated good faith, including the demonstration of legitimate business reasons for the suspension.

With regard to the "good faith" assessment, the SCC applied its decision in Bhasin v Hrynew, 2014 SCC 71 ("Bhasin"), stating that not providing the employee with reasons for the suspension is not acting in good faith. In doing so, the SCC in Potter applied Bhasin, which was decided in a commercial contract context, to an employment law case, meaning that all parties in an employment law contract are expected at law to be honest, reasonable, candid and forthright in executing the contract. How this principle will be applied in employment law beyond Potter is yet to be seen.

With regard to "legitimate business reasons", the SCC stated:

Other than in the context of a disciplinary suspension, an employer does not, as a matter of law, have an implied authority to suspend an employee without such reasons. Legitimate business reasons must always be shown, although the nature or the importance of those reasons will vary with the circumstances of the suspension.

Resignation

Of note, the SCC also stated in obiter dictum in Potter there are circumstances in which an employee could commence litigation against the employee's employer for constructive dismissal and still not be deemed to have voluntarily resigned. These circumstances may occur in a situation where the employee has commenced the legal action but has continued to work under protest for the employer.

Conclusion

The SCC in Potter tied together a number of loose threads in Canadian case law and created a new analytical framework for constructive dismissal claims generally,as well as specifically in the context of administrative suspensions in an non-unionized context.

The new frameworks provide clarity with regard to how an employer's actions are to be analyzed. Nevertheless, each case will determined on its unique circumstances, and Potter does not—and could not—provide a rigid and comprehensive template to determine when an employer's actions constitute constructive dismissal.

However, constructive dismissal is a common issue that arises in employment law, and given that the stakes are so high when the issue arises, the SCC's comments on the topic, in Potter, provide important guidance for both employers and employees.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Dale & Lessmann LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Dale & Lessmann LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions