Constructive Dismissal

Haber & Associates can help your small business, company or your HR department if you think that there may be looming constructive dismissal issues that may need to be addressed. For an employer, a constructive dismissal case can be very expensive.

What is constructive dismissal?
One of the seminal decisions is that of Farber vs. Royal Trust Company. In that case the Supreme Court noted that a Constructive dismissal occurs when an employer substantially alters, without an employee’s consent, an essential term of the employee’s contract of employment.

What changes may amount to constructive dismissal?
The basic explanation is that changes that go to the root of the employment contract are considered fundamental.For example (these are only example taken from real cases. There are many more issues to consider.)

A. changes in remuneration, remuneration is at the heart of the barging between your company and your employees.  Most reductions and salary will amount to constructive dismissal.  In Farber vs Royal. Trust ,  constructive dismissal occurred when the basis of the plaintiff’s remuneration from a combination of salary + commissions to strictly commission amounted to a constructive dismissal.  An employer must be very careful because in most incidents, changes to an employee salary, including alteration of the basis for calculating remuneration may amount to constructive dismissal.

B. changes to benefits, where payments under a bonus plan is discretionary, alterations to the bonus entitlement have been found to not always amount to an alteration to a fundamental term of the contract.  On the other hand amendments to non discretionary bonus plans (which mean a decrease in the employee’s bonus entitlement) are often treated the same way as alterations to salary.  In most instances such alterations will constitute constructive dismissal, excluding minor changes to benefit plans that are not a significant.  In essence, significant changes to benefits or remuneration are likely to be viewed as fundamental – again talk to a lawyer.

C. changes in your employee work hours – a slight variations in hours are permissible, unless is could be inferred that the parties had agreed to particular working hours.  In the case of Laakso vs, valspar the plaintiff was transferred from dayshift to shift work.  The plaintiff was medically incapable of working nights and in these circumstances the unilateral change in hours was found to constitute constructive dismissal.  The change may amount to constructive dismissal.

D. changes in work locations – until recently the Ontario case law supported a conclusion that relatively senior employees and large organizations were required to accept transfers in locations.  However several years ago in the court of appeal case of Reynolds vs. Innopac Inc., as a result of a corporate reorganization, the plaintiff, a director of human resources, was required to relocate from South Western Ontario to Vancouver.  The court found that this would have necessitated increase travel for the plaintiff as he would have been required to service plants in South western Ontario.  His duties also might have been altered slightly in Vancouver.  When he was originally hired the plaintiff was required to travel only in Ontario as the employer had no operation else where.  The trial judge found that there was no constructive dismissal arising from this relocation request; however this decision was overturned by the court of appeal who found that the relocation requirement amounted to a fundamental change entitling the plaintiff to a two year payment provided in his golden parachute termination clause.  This decision is not confined to its particular facts it significantly alters the impact of relocation requests.

E. changes in job status - the courts have long decided that job reassignment amounting to any type demotion would constitute a constructive dismissal.  The courts also have recently undercut management rights to affect lateral transfers.  Now despite nothing inheriting demeaning about lateral work transfers being offered or remuneration packages had to be unchanged, the court of appeal has held that lateral changes do constitute a breach of employment agreement and damages have been awarded for this unilateral breech.

F. a difficult work environments or humiliating treatments, or bulling - this is an area that must be addressed immediately and brought to an employer’s attention.  There should be no instances of harassments tolerated in a work place and any criticisms, dishonesty, assault or bulling, humiliating treatment or insult must be properly addressed by management without delay.  A seminal case in this area is Shah vs. Xerox Canada limited. In this case the plaintiff had received several good performances evaluations.  He was a good employee who always arrived on time and did his work dutifully.  A new manager was hired and soon he and that new manager developed personality conflicts between each other.  The manager criticized him for minor matters and that plaintiff immediately addressed the issues raised but non the less reserved stern warnings.  The plaintiff soon became ill and took time off and when his relations with his manager deteriorate further the plaintiff was assigned to several new tasks.  These tasks were, as the plaintiff put old tasks that others have failed to accomplish.  The plaintiff that therefore felt that deadlines listed on the forms was unreasonable.  He then received more stern warnings.  The plaintiff ended taking a stress leave; he returned to work and then was placed on probation to failing to properly call in sick one day.  Upon receiving another letter placing him on probation the plaintiff resigned and claimed he was constructively dismissed.  The court of appeal noted in this case where “where the conduct of management personnel is calculated the cause the employee to with draw from the employment it may amount to constructive dismissal”. The test is objective. It is whether the conduct of the manager was such a reasonable person in those same circumstances should not be expected to persevere in the employment.  Each case must be decided on its on facts and this test of the reasonable person should not be applied lightly.  An employer is entitled to be critical of the unsatisfactory work of its employees and take measures, such as disciplinary measures or other measures it believes to be appropriate to remedy the situation.  However there is a limit and if the employers conduct in the particular circumstances pass so far beyond the bounds of reasonableness, that the employee reasonably finds continued employment to be intolerable there will be constructive dismissal.

The court of appeal up held this approach and confirmed that constructive dismissal may occur through a series incidents such as repeated unfounded criticisms, which create a hostile embarrassing work environment.  A fundamental breech of the terms of the employment contract may exist where their environment is rendered “intolerable”.

Conclusion
If your company is contemplating changes to an employee’s status, compensation, territory, work location, hours of work, changes to benefits then you should speak to a lawyer. Matt can help.

If you have already decided to make the change or the change has already been made – ensure to give proper notice of the change.   Accord it to their time of service. The worse thing an employer can do is keep an employee in the dark concerning any projected changes that may be made If changes are approached carefully and with precision (outside the obvious reasons of reorganization or restructuring or merger) then those changes could be dealt with outside any possible commencement of litigation.   An employer will often see that if it approaches any fundamental changes of the sculpt of the employment contract with a caring concern for the employee, it will be much easier to deal with those changes and more often than not an employer will receive the employees consent.

There are ways to properly handle changes without getting hit with a lawsuit. We can help.

*This is not legal advice. We are not your lawyers until you retain us. The above is information taken from real cases.