Canada: Supreme Court Of Canada Finds Paid Suspension Amounts To Constructive Dismissal

Last Updated: March 13 2015
Article by Andrew Pozzobon and Jennifer M. Fantini

Most Read Contributor in Canada, July 2019

Can an administrative suspension amount to a constructive dismissal? Case law had differed between courts and provinces on the issue, but the matter has finally been settled by the Supreme Court of Canada ("SCC"). In Potter v. New Brunswick Legal Aid Services Commission,1 the SCC considered whether, and in what circumstances, a non-unionized employee who has been suspended with pay could have a claim for constructive dismissal. The plaintiff brought an action against his employer, the New Brunswick Legal Aid Services Commission (the "Commission"), for constructive dismissal after he was suspended with pay. In its decision, the SCC held that Mr. Potter had been constructively dismissed. The Commission did not have the authority to suspend Mr. Potter indefinitely with pay and the suspension was a substantial breach of the contract, which amounted to constructive dismissal.

BACKGROUND

Mr. Potter was appointed as the Executive Director of the Commission for a seven year term. In the first half of the term, the relationship between the parties deteriorated and they began negotiating Mr. Potter's exit. Mr. Potter took sick leave before the matter was resolved. Before the conclusion of his sick leave, the Commission suspended Mr. Potter indefinitely with pay and delegated his powers and duties to another person. Mr. Potter claimed that he had been constructively dismissed and commenced litigation. The Commission took the position that Mr. Potter had voluntarily resigned. The trial judge found that Mr. Potter's administrative suspension with pay did not constitute constructive dismissal, in the circumstances despite its indefinite term. The Court of Appeal agreed. Mr. Potter appealed to the SCC.

DECISION

The SCC held that Mr. Potter had been constructively dismissed. In its analysis, the SCC set out the legal test for constructive dismissal and noted that two branches of the test have emerged. Typically, a court must first identify an express or implied contract term that has been breached, and then determine if the breach was sufficiently serious so as to amount to constructive dismissal (this usually involves substantial changes to compensation or duties). However, an employer's conduct may also constitute constructive dismissal if it shows that the employer intended not to be bound by the contract. This does not involve the identification of a specific term that has been breached, but that the employer's treatment made continued employment intolerable. Therefore, constructive dismissal can either be a single unilateral act or a series of acts that, taken together, show that the employer no longer intended to be bound by the employment contract.

Applying the first branch of the test, the SCC set out a two-step test for determining if a constructive dismissal exists:

Step 1: The court must first identify an express or implied contract term that has been breached.

Did the employer unilaterally change the contract? If an express or implied term gives the employer the authority to make the change, or the employee condones or consents to the change, the change will not be considered unilateral.

Step 2: The court must determine whether that breach was sufficiently serious to constitute constructive dismissal.

If a unilateral change has been identified then the court must ask whether "at the time the [breach occurred] a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed."2

"In each case, determining whether an employee has been constructively dismissed is a "highly fact-driven exercise" in which the court must determine whether the changes are reasonable and whether they are within the scope of the employee's job description or employment contract."3

Therefore, an administrative suspension must be explicitly authorized under the contract or be reasonable and justified (i.e. an implied term) if it is to fall short of amounting to constructive dismissal. While the SCC did not articulate a rigid framework for determining whether an administrative suspension is just and reasonable, the court noted that there are certain factors that are relevant such as the duration of the suspension, whether the suspension is with pay, and good faith on the employer's part, including the demonstration of legitimate business reasons. If a suspension is unauthorized, it will likely amount to a breach of the employment contract.

In this case, the SCC held that there was no express right for Mr. Potter's employer to suspend him. The SCC also held that there was no implied right to suspend in the circumstances. Further the SCC considered that even if the Commission had an implied right to suspend Mr. Potter, the authority was not unfettered and is subject to a basic requirement of business justification. Because the Commission failed to establish that the suspension was reasonable or justified, it could not argue that it was acting pursuant to an implied term of the employment contract. Further, the Commission failed to provide Mr. Potter with any reason for the indefinite suspension. "In light of the indefinite duration of his suspension, of the fact that the Commission failed to act in good faith insofar as it withheld reasons from him, and of the Commission's concealed intention to have him terminated,"4 the suspension was not authorized by his employment contract. In short, Mr. Potter proved that the Commission's unilateral act of suspending him with pay breached his employment contract and that the breach substantially changed the essential terms of the contract. As such, Mr. Potter was constructively dismissed and therefore entitled to damages for wrongful dismissal.

APPLICATION

The SCC was clear in its reasons that the principles of this case do not apply to layoffs for economic reasons, administrative suspensions for reasons unrelated to the employee's conduct, or disciplinary suspensions. Not all administrative suspensions will be grounds for a claim for constructive dismissal.

The SCC also considered whether there is a general duty to provide work, and concluded that for some categories of employees a suspension with pay may be authorized, but for other employees there may be an implied duty to provide work. The latter includes common law exceptions such as employees who receive commission earnings or who derive a reputational benefit from the performance of their work. Whether there is a duty to provide work is a fact-specific determination. However, an employer's authority to withhold work is never unfettered. In no case will an employer be at liberty to withhold work in bad faith or without justification. The fundamental question will be whether the employer's decision to suspend was both reasonable and justified in the circumstances. In most circumstances, an administrative suspension cannot be found to be justified in the absence of a basic level of communication with the employee. At a minimum, acting in good faith in relation to contractual dealings means being honest, reasonable, candid and forthright.

Employers considering administrative suspensions should implement them carefully and with due consideration for the parameters outlined in the Potter decision. Employers should also consider whether they need to amend their employment contracts to include an express right to suspend employees.

Footnotes

1. 2015 SCC 10.

2. Supra, fn. 1, citing Farber v. Royal Trust, [1997] 1 SCR 846, at para 26.

3. Supra, at para 40, citing R.S. Echlin and J. Fantini, Quitting for Good Reason: the Law of Constructive Dismissal in Canada (Canada Law Book, 2001).

4. Ibid., at para 46.

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