Constructive Dismissal in Canada

Constructive dismissal happens when an employer does not formally fire an employee but makes a major unilateral change to a fundamental term of the job, or treats the employee in a way that shows it no longer intends to honour the employment contract. The law treats this the same as a termination without cause, so the employee may be entitled to reasonable notice or pay in lieu. The Supreme Court of Canada set out the test in Potter v. New Brunswick Legal Aid Services Commission (2015).

This article is part of the guide to employment law in Canada.

The short version

• A significant, unilateral change to pay, duties, hours or location can be a constructive dismissal.
• So can a poisoned work environment or a pattern of conduct showing the employer has abandoned the contract.
• Minor or reasonable changes usually are not enough.
• Timing matters. Continuing to work under the new terms for too long can be treated as accepting them.
• Resigning too early or without advice is risky. Get legal advice first.
• A successful claim is usually worth the same as a without-cause termination.

The Legal Test

In Potter, the Supreme Court described two ways to prove constructive dismissal:

The first branch looks only at facts the employee knew or could reasonably foresee at the time. The second does not require any specific term to have changed.

Common Examples

• Pay cuts: a substantial reduction in salary, commission structure or benefits. Courts often look at the percentage of total compensation affected.
• Demotion: a significant reduction in title, responsibilities, reporting level or status.
• Relocation: a forced move to a location that significantly changes commuting or living arrangements, without a contractual right to relocate.
• Hours or schedule: a major change, such as full-time to part-time.
• Layoffs without a contractual right: under the common law, an employer with no contractual right or established practice to lay off may be found to have constructively dismissed the employee, even if the layoff is within employment standards limits.
• Administrative suspensions: in Potter itself, an indefinite paid suspension without good reason was a constructive dismissal.
• Toxic workplace: persistent harassment, bullying or abuse by a manager that the employer fails to address. See workplace harassment in Canada.

What Usually Is Not Constructive Dismissal

• small changes in duties within the employee's role
• reasonable changes the contract expressly allows
• legitimate performance management, such as a fair performance improvement plan
• changes the employee clearly accepted
• a change in manager or minor reorganization

Timing: Condonation and Working Under Protest

An employee faced with a major change has three broad options:

1. Accept the change. If the employee keeps working without objection for a significant time, they may be found to have accepted it.
2. Work under protest. The employee objects in writing, keeps working and reserves their rights while getting advice. This can preserve the claim for a reasonable period, but not forever.
3. Treat the employment as ended. The employee stops working and claims constructive dismissal. If a court later disagrees that the change was serious enough, the employee may be found to have resigned and receive nothing.

Because option 3 is risky, legal advice before resigning is essential.

Mitigation

Even after a constructive dismissal, the employee must try to reduce their losses. In Evans v. Teamsters Local Union No. 31 (2008), the Supreme Court held that in some circumstances an employee may be expected to mitigate by accepting work from the same employer, for example where the relationship has not become hostile and the work is not demeaning. This is one reason constructive dismissal cases are fact-specific.

What a Claim Is Worth

If constructive dismissal is proven, the employee is generally entitled to the same compensation as a without-cause termination: statutory minimums plus, unless a valid termination clause applies, common-law reasonable notice. Additional damages are possible where the employer acted in bad faith or where human rights were breached. See severance pay in Canada and wrongful dismissal in Canada.

Employment Standards Rules

Some employment standards laws treat certain changes as a termination. For example, in Ontario, a layoff that goes beyond the permitted temporary layoff period becomes a termination under the Employment Standards Act. Ontario's Act also says an employer constructively dismisses an employee if it significantly changes a fundamental term or condition of employment and the employee resigns in response within a reasonable period. Employment standards complaints have their own deadlines. See employment standards by province.

Practical Steps

1. Write down what changed and when, and keep copies of emails, offer letters and the employment contract.
2. Object in writing if you do not accept the change, while staying professional.
3. Get legal advice quickly, ideally before the change takes effect.
4. Keep working under protest while you decide, unless the workplace has become unsafe or intolerable.
5. Start looking for other work and keep records.

Frequently Asked Questions

Is a pay cut constructive dismissal?

It can be, if it is significant and imposed without the employee's agreement or a contractual right. Small reductions are less likely to qualify.

Can I quit and claim constructive dismissal?

Yes, but it is risky. If a court decides the change was not fundamental, the resignation stands and the employee may receive nothing. Get advice first.

How long do I have to decide?

There is no fixed period, but the longer someone works under the new terms without objection, the more likely they are to be found to have accepted them. Act within weeks, not months.

Is a toxic workplace constructive dismissal?

It can be, if the employer created or tolerated a work environment so hostile that continued employment is intolerable. Human rights or harassment complaints may also apply. See human rights complaints at work.

Facing a major change at work? Search LawyerDirectoryCanada.ca for employment lawyers by province and city.

Sources

• Supreme Court clarifies the test for constructive dismissal, Lenczner Slaght
• SCC revisits constructive dismissal in Potter v. New Brunswick Legal Aid Services Commission, Mondaq
• Supreme Court decision on constructive dismissal, Gowling WLG
• Your guide to the Employment Standards Act: termination of employment, Government of Ontario
• Workplace harassment: information for workers, Government of Ontario