Originally published in Employment Update (March 2015)
The Supreme Court of Canada issued a decision on March 6, 2015,
in Potter v. New Brunswick Legal Aid Services Commission,
which further clarifies the rules concerning when an employee has
been constructively dismissed.
The case involved the Director of Legal Aid for New Brunswick.
Mr. Potter took a medical leave after almost four years of a seven
year appointment. The Board responsible for his employment had
commenced negotiations with him several months before this leave in
an attempt to buy him out of the contract for less than the
remaining time. When he was ready to return to work the Board told
him he was not to return 'until further direction,'
although he remained on full pay and benefits. Seven weeks later,
having not been instructed to return to work, he commenced an
action alleging constructive dismissal. The courts below found him
to have quit when he commenced the action, as alleged by the
The Supreme Court dealt with this case by reinforcing and
applying a two stage analysis which it has indicated will be
required in all constructive dismissal cases:
Step One: Determine if the employer has
unilaterally changed the contract in a manner detrimental to the
employee. If the employer has the express or implied right in the
contract to do whatever they have done, or if the employee consents
or 'acquiesces' to the change, there is no breach and
therefore there can be no constructive dismissal. If, however, the
employer does not have the express or implied right to do what they
have done, and there has been no consent or acquiescence, the
analysis goes to step two.
Step Two: Determine if a reasonable person in
the same situation as the employee would have felt that the
essential terms of the contract were being substantially changed. A
minor change could not be so perceived and could therefore not
amount to constructive dismissal.
The court indicated that this analysis is a 'highly
fact-driven exercise.' The breach can be one significant action
or a number of actions that cumulatively add up to a significant
change. In such case, the series of acts are examined, in the light
of a 'reasonable person' analysis, to determine whether or
not, taken together, they would be seen to show that the employer
no longer intended to be bound by the contract. Whether the
employer actually intended to not be so bound is not the
The onus is on the employee to establish both elements of the
In this case, the Supreme Court found that the ability to work
is a fundamental aspect of any employee's life from which they
derive not only remuneration, but also a sense of identity and
self-worth. The Supreme Court relied on its decision from late
2014, Bhasin v. Hrynew, in which it established a duty to
act in good faith in contractual dealings. Not surprisingly, the
Supreme Court found that this duty applied in an employment
contract relationship where the employer is often, if not almost
always, seen as the more dominant party. The Supreme Court
overturned both the trial court and the Court of Appeal decision
and found Mr. Potter to have been constructively dismissed. It
awarded damages for the remainder of the seven year contract with
no deduction for pension benefits received by Mr. Potter following
his constructive dismissal.
The Take Away
The Supreme Court, in our view, is making it increasingly clear
that employers must treat employees honestly and in good faith -
and not necessarily only at the time of termination. In this case,
the Commission provided Mr. Potter with no reason for the
suspension, but in the context of the negotiations that had been
going on before his medical leave, it can be inferred that their
reasons for the suspension were related to these negotiations.
While the Supreme Court finds that administrative suspensions
may be justified in certain circumstances, such was not the case
here, and the Commission's failure to act honestly and in a
bona fide fashion appeared to be a conclusive element in
the Supreme Court's decision to grant significant damages.
Employers who may consider unilateral actions to
'encourage' an employee to leave or negotiate a severance
package should take note: your failure to act honestly and in good
faith could justify significant damages.
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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After a very well-received presentation in 2015, Bob was invited back to co-present with David Robbins and Robert Janes on the topic of Aboriginal Title and the “Land Question”: Understanding the Tsilhquot’in Case and its Implications for Canada, Provinces and Aboriginal Groups.
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