Back to Basics: Constructive Dismissal

I frequently refer to constructive dismissal, such as in my recent post about McMillan v. Selectrucks.  I often talk about it in a fairly cursory way, but I feel it's important to occasional address more basic questions.

What is Constructive Dismissal?

Constructive dismissal is a term that most people have heard of, a general idea that, if the employer does something wrong, they can quit and still demand a package.  It's a term that's thrown about pretty casually in some contexts, yet people are rightly reluctant to give up secure employment on the basis of some simplistic sense of an abstract legal principle.  The result is that I, and lawyers like me, get lots of calls from employees saying, "My employer did x, have I been constructively dismissed?"

The essence of constructive dismissal, and part of what makes the doctrine very weak in many cases, is that it is an extension of wrongful dismissal.  Wrongful dismissal damages are not a windfall.  You don't get rich by suing in wrongful dismissal.  Indeed, in many cases the entitlements are quite limited, and so it seems a poor trade to lose one's job in exchange for wrongful dismissal damages.  The appeal of constructive dismissal, of getting paid to walk away, quickly loses its glamour in light of the bleak future of unemployment in an uncertain economy.

So, if you have been constructively dismissed, you are entitled to treat yourself as having been terminated by the employer.  Sort of.  There are all sorts of exceptions and qualifications to address, but let's look to the legal definition first:  A constructive dismissal results when the employer unilaterally makes a fundamental or substantial change to the terms of an employee's contract.

Whether or not the change is unilateral is pretty straightforward:  If you agree to the change, it isn't unilateral.  Whether a change can be characterized as fundamental or substantial...is trickier.

In the jurisprudence, there are really two different types of constructive dismissal.  There's the constructive dismissal where the employer actually changes the employee's duties, functions, title, compensation, or some other aspect of the terms of employment (the "demotion" cases), and then there are the Shah-type cases, where an employee quit to escape harassment or an otherwise poisoned work environment.

It is largely a matter of scale.  The employer is entitled to make certain changes to the terms of an employee's contract, and that includes reductions in pay...to a certain extent.  When the change is large enough to be said to be a 'fundamental' change, then it can be characterized as constructive dismissal.  Where an employee is demoted, with a loss of prestige, that too can be a constructive dismissal, depending on the significance of the change.

The McMillan case shows how even the Shah-type cases are a matter of scale:  Even if you can show that you have been treated unfairly by the employer, and this led you to leave, that will not necessarily make out a case for constructive dismissal.

There are also the 'discipline' cases, which can be a hybrid of the two types.  Sometimes, it's discipline being imposed as part of a campaign of harassment, making it a Shah-type case.  Other times, the discipline itself can exceed employer authority.

This is a mistake I've seen unionized employers make with their non-union staff members, applying the same disciplinary process to them, including unpaid suspensions.  The way the jurisprudence sits on unpaid suspensions was set out by the late Justice Echlin in Carscallen v. FRI Corporation, upheld by the Court of Appeal:  Unless there is an express contractual right to do so (as there usually is in collective agreements, but seldom in individual contracts of employment), an employer has no inherent right to impose unpaid suspensions in disciplinary matters, unless the misconduct rises to the level of "just cause".  In other words, if the employer would be justified in firing the employee without notice, then it can forbear and instead issue an unpaid suspension instead.  Otherwise, it will be a breach of contract, and possibly generate a constructive dismissal.

The Difficulty of Mitigation

When your employment is terminated and you want pay in lieu of notice, you're obligated to try to mitigate your loss by seeking replacement employment.  There is a line of cases dealing with demotions or pay cuts establishing that, where the demotion isn't the result of a soured relationship, an employee can be expected to accept the new position with the same employer in mitigation of the loss generated by the constructive dismissal.

In other words, you might be entitled to treat yourself as having been dismissed by your employer, yet your employer may still be entitled to expect you to stay in the job nonetheless.  (In a previous blog, I wrote of this disconnect and called it "Unconstructive Dismissal".  Just to clarify terminology, there's not actually such a thing called "unconstructive dismissal"...that was just ironic wordplay on my part.)  So there have been cases where the Court has found that a constructive dismissal had occurred, and yet the Court also found that the employee should have stayed in the job as mitigation while seeking a new job, with the result that the employee had few if any entitlements.

(In a case that turns around the same concept, an employee whose pay was cut significantly actually stayed in the job and sued the employer for the salary to be topped up through what would have been the notice period.)

There was one case that went to the Supreme Court, Evans v. Teamsters, which was similar, though not strictly a constructive dismissal case:  The employee had actually been dismissed, and was offered another position on a contract basis through the notice period when he came back with a lawyer's letter.  The Court felt that refusing the job was a failure to mitigate.

I feel that this doctrine needs to be refined, for two reasons.  Firstly, mitigation is usually fairly employee-friendly:  Employees are not generally required to take the first job that comes along, but are entitled to hold out for a job that is close to being as good as the old job.  Outside of these "employment with the same employer" cases, I know of no other case that holds that an employee should accept another position on a temporary basis while seeking replacement employment.

Secondly, this disconnect is the result of having two different standards for what should essentially be the same thing.  In my view, if the changes in the employment relationship are not so significant as to make the resulting job 'not equivalent' for the purposes of mitigation, then it can't be constructive dismissal.  Conversely, if the changes are significant enough to constitute constructive dismissal, then the job can't be close enough to expect the employee to accept it in mitigation.  Still, that's my own view, and does not reflect the current state of the law.

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This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation.  If you need legal assistance, please contact him for information on available services and billing.