What is Constructive Dismissal? How can I know when I’ve been constructively dismissed?

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By Michael Truong and Daniel Sorensen

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

If your basic work terms have been drastically and unilaterally changed by your employer, you may have a case for constructive dismissal and be entitled to compensation.

The leading decision on the law of constructive dismissal in Canada was, and remains, the Supreme Court of Canada decision in 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 an essential term of employment or treating the employee in such a way that creates an intolerable work environment for him or her.

As an employee, it is very difficult to determine whether an employer has unilaterally altered an essential term of your employment or treated you in such a way to establish an unbearable work environment so as to trigger a constructive dismissal. 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. Substantial changes to these terms of employment may constitute a constructive dismissal.

You should be aware that an employee who fails to take action within a reasonable amount of time may be deemed to condone or acquiesce to the employer’s unilateral change of the employment terms. In those circumstances, the employee cannot pursue a constructive dismissal claim.

It must be noted that constructive dismissal claims are subject to the duty to mitigate. This will be dealt with in more detail in a future blog post, but it means that employees must take reasonable steps to mitigate their loss from constructive dismissal. This means that severance in constructive dismissal cases can be reduced if the employee finds alternative employee in the time following the constructive dismissal. Further, severance can be reduced if the employee fails to take adequate steps to locate new employment. In some instances, employees will be obligated to mitigate by continuing to work for the same employer after the constructive dismissal, and can face reduced severance claims if they fail to continue to work with the same employer.

If you feel you have been constructively dismissed, it is best to seek legal advice as constructive dismissal claims are highly dependent on the facts of each particular scenario. Contact us today for a consultation regarding constructive dismissal.