Changing Terms of Employment and Constructive Dismissal

posted in: Employer | 0

By Michael Truong and Daniel Sorensen

If you are considering changing an employee’s work terms you may be faced with an unintended case of constructive dismissal and be liable for damages.

Constructive dismissal signifies an employer’s unilateral change to an essential term of employment and is of such significance to a reasonable employee that the employer has essentially broken the contract, thereby terminating the employment relationship.

The leading decision on the law of constructive dismissal in Canada was, and remains, the Supreme Court of Canada case of Farber v. Royal Trust Co., [1997] 1 S.C.R. 846. Recently, the Supreme Court of Canada reiterated the basic analysis from Farber, explaining that whether a constructive dismissal has occurred depends on whether an employer’s conduct “evinces an intention no longer to be bound by the employment contract” (Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10, at paras. 30-31; Farber at para. 33). Constructive dismissal can come in the form of an employer unilaterally changing to an essential term of employment or treating the employee in such a way that creates an intolerable work environment for him or her.

The courts have found the following terms to be essential to an employment contract: compensation, work hours, severance terms (or reasonable notice of termination), reporting relationships, areas of responsibility, work location, and promised promotions. If you change these terms of employment, it is possible that an employee can make a constructive dismissal claim against you.

Despite the foregoing, as an employer, you are not precluded from changing the employee’s terms of employment. There are express and implied terms permitting unilateral changes by the employer. Whether and to what extent such express or implied terms permit the proposed changes to the employment contract can be difficult to predict. Further, an employee may have acted in a way that he or she has condoned or acquiesced to the changes to his or her position, which may justify the employer’s change.

There are a number of tips to assist you to avoid triggering a constructive dismissal:

  • Be proactive and anticipate changes. Ensure you have employment contracts that permit unilateral changes to an employee’s basic terms and conditions;
  • Be open to discussion, negotiation and compromise of an employee’s terms of employment;
  • Obtain acceptance in writing if the employee accepts a change to his or her employment terms; and
  • Where changes are being made to an employee’s terms of employment, give as much notice of the changes as possible;

To determine whether you may be faced with a constructive dismissal, and to get advice on how to avoid a constructive dismissal claim, it is best to seek legal advice. Contact us today for a consultation.