Constructive dismissal occurs where an employee resigns, but the
departure is treated in law as if there was a dismissal by the
employer. The legal principles involved in constructive
dismissal cases are not as straightforward as most employees or
employers would prefer, since each case is decided on its
In Potter v New Brunswick Legal Aid Services
Commission, 2015 SCC 10, the Supreme Court of Canada
considered whether an employee who was suspended with pay had been
constructively dismissed. The decision of the Supreme Court
of Canada in Potter builds on the approach established by that
Court in its 1997 decision in Farber v Royal Trust
Co. Court decisions since Farber have provided
further guidance on the types of unilateral changes by the employer
which amount to constructive dismissal. Most of the actions
by an employer that amount to constructive dismissal involve a
demotion of the employee; a substantial reduction in compensation;
or, a transfer involving a change of geographic location.
Potter was the Executive Director of the New Brunswick Legal Aid
Services Commission. The employment relationship
deteriorated; they began negotiating a buyout of the employment
contract; and, his employer suspended him indefinitely with
The Supreme Court noted that the test for constructive dismissal
requires a determination about whether a term of the employment
contract was breached, and whether the breach is sufficiently
serious. The employer's unilateral change must breach the
contract and must substantially alter a fundamental term.
There must also be a decision made about whether a reasonable
employee would have felt that essential terms of the employment
contract were being substantially changed.
The Court concluded that even where there is an implied power to
suspend, it is subject to a requirement of business
justification. Potter was given no reasons for the
suspension, and the Court noted that a suspension could not be
justified without a basic level of communication with the
employee. Acting in good faith required the employer to be
honest, reasonable, candid and forthright, and failing to give an
employee any reason for a suspension was not being forthright.
The Court concluded that Potter had been constructively
dismissed in light of among other things, the indefinite suspension
and the fact that the employer withheld reasons for the
suspension. According to the Court, the employer did not have
authority, whether express or implied, to suspend indefinitely with
pay, and the suspension was a substantial change to the contract,
which amounted to constructive dismissal.
This case shows that, in order to avoid costly constructive
dismissal litigation, both employers and employees may need legal
advice about the circumstances that justify suspension before
imposing or responding to a suspension.
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