CONSTRUCTIVE DISMISSAL –A PRIMER

CONSTRUCTIVE DISMISSAL –A PRIMER

By Ernest A. Schirru & Jody Brown of Koskie Minsky LLP

Introduction

Employment relationships may end in a variety of different ways: (i) the employer

terminates the relationship for cause with no notice, (ii) the employer terminates the

relationship without cause by giving notice or payment in lieu of notice, (iii) the

employee terminates the relationship, (iv) the relationship comes to an end due to

frustration, (v) the relationship comes to an end due to job abandonment, (vi) the

relationship comes to an following the completion of a fixed term contract, and (vi)

constructive dismissal.

Constructive dismissal claims are premised on long standing principles of general

contract law. Constructive dismissal occurs when the employer commits a “repudiatory”

breach of the employment contract which either demonstrates that it no longer intends

to observe the terms of the employment agreement or whose consequences deprive the

employee of substantially all of the benefits the employee bargained for, thus allowing

the employee to terminate the employment contract and recover damages.1

In the modern leading constructive dismissal case of Farber v. Royal Trust Co., the

Supreme Court described constructive dismissal as follows:

Where an employer decides unilaterally to make substantial changes to the essential

terms of an employee’s contract of employment and the employee does not agree to the

changes and leaves his or her job, the employee has not resigned, but has been

dismissed. Since the employer has not formally dismissed the employee, this is referred

to as “constructive dismissal”. By unilaterally seeking to make substantial changes to the

essential terms of the employment contract, the employer is ceasing to meet its

obligations and is therefore terminating the contract. The employee can then treat the

contract as resiliated for breach and can leave. In such circumstances, the employee is

entitled to compensation in lieu of notice and, where appropriate, damages.2

This paper will serve as an introduction to the essentials of constructive dismissal as

well as provide a brief discussion of some other important considerations when

contemplating the commencement of a constructive dismissal claim.

Essential Considerations

There are three essential considerations in any successful constructive dismissal claim,

namely:

1. What are the express and/or implied terms and/or conditions of the

employment contract?

2. Has there been a breach of the express and/or implied terms and/or

conditions of the employment contract?

• 1 Ball, Stacey Employment Law in Canada, section 13.24

• 2 Farber v. Royal Trust Co., [1997] 1 S.C.R. 846 at para 24 (per Gonthier J.)

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3. Assuming there is a breach, is the breach fundamental in nature so as to give

rise to claim for constructive dismissal?

1. What are the express and/or implied terms and/or conditions of the employment contract?

This first consideration is focused on whether the employer’s conduct indicates an

intention to no longer be bound by one or more of the fundamental/essential terms

and/or conditions of the employment contract, thereby repudiating it. An understanding

of the fundamental/essential terms and/or conditions of the employment contract is

therefore essential, as the constructive dismissal claim is premised on a change to one

or more of these terms and/or conditions.

Employment contracts are made up of express and implied terms. The express terms of

an employment contract will often include such things as remuneration, rank, hours of

work etc. Express terms set out in any employment contract provide the courts with a

clear expression of the pre-change state of the employment relationship. Assuming the

change to the employment relationship giving rise to a constructive dismissal claim is a

change to a fundamental/essential and express term set out in an employment contract,

the task of making a constructive dismissal claim is more straightforward because it

simplifies the before-and-after comparison required to make a successful constructive

dismissal claim.

A constructive dismissal claim premised on a change to a fundamental/essential implied

term in an employment contract is more complex because the pre-change state of the

employment relationship is not as easy to prove. Implied terms often figure prominently

in any constructive dismissal claim and will frequently be the focal point in any dispute.

Terms can be implied by the court based on either a policy rationale or on the evidence

of the parties’common intentions at the time of contracting, similar to traditional contract

law. There is no exhaustive or generally applicable list of implied terms for employment

contracts. The party asserting an implied term bears of the onus of proving such a

term.3 Recently, in Colwell v. Cornerstone Properties, the Court found that covert

camera surveillance of an employee breached an implied duty “that each party would

treat the other in good faith and fairly”in the employment contract. In the result, the

employer’s breach of this implied term gave rise to a successful constructive dismissal

claim.4 Similarly, in Reynolds v. Innopac Inc. the Ontario Court of Appeal held that

requiring an executive to move to British Colombia was not a term contemplated at the

time of contracting and therefore could not be implied term, so the employer’s transfer

of the executive, along with other factors, gave rise to a constructive dismissal claim

which entitled the employee to damages.5

When litigating a constructive dismissal claim, it is important to keep in mind that

express or implied terms may operate to not only restrict employer conduct and support

a constrictive dismissal claim but also to permit certain employer conduct that otherwise

could be viewed as a constructive dismissal. There is no fundamental change if a

• 3 Olympic Industries Inc. v. McNeill (B.C.C.A.)

• 4 Colwell v. Cornerstone Properties, [2008] O.J. No. 5092 at para 36 (S.C.J)(Little J.)

• 5 Reynolds v. Innopac Inc. (1998), 34 C.C.E.L. (2d) 131 at paras 17-19 and para 47.

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contract of employment expressly or impliedly anticipates the employer conduct which

but for the existence of the express or implied term would give rise to a successful

constructive dismissal claim. For example, in Ferdinand and Usz v. Global Driver

Services Inc., the Court found that there was an implied term that the employer could

unilaterally re-assign bus routes of its employees. As a result, the employee’s claim of

constructive dismissal arising from a route reassignment failed.6

An employer can also be found to have repudiated an employment contract without

changing a specific term of the contract on a singular date. In other words, the conduct

of an employer over a sustained period of time may cumulatively result in the

repudiation of the employment contract giving rise to a successful constructive dismissal

claim. For example, in Shah v. Xerox, the Ontario Court of Appeal noted that

constructive dismissal may be found when “the employer's conduct amounts not just to

a change in a specific term of the employment contract but to repudiation of the entire

employment relationship.”7 In the case of Shah, the employer had engaged in prolonged

and unjustified criticism of the employee by way of critical performance reviews and

unjustified warning letters which resulted in the employee suffering emotional distress.

The employee eventually resigned and commenced a constructive dismissal claim

wherein the Court ultimately awarded him damages.

2. Has there been a breach?

In context of a constructive dismissal claim, an employer’s breach of a term and/or

condition of the employment contract must be unilateral. In other words, for a breach to

exist, there must be an absence of consent on the part of the employee to any change

in the terms and/or conditions implemented by the employer. An employees’express or

tacit consent to a fundamental change will be fatal to a constructive dismissal claim.

In the context of a constructive dismissal claim employers frequently argue that the

employee has, by their conduct, agreed to or condoned the changes to their

employment and therefore waived any right to claim constructive dismissal. The

existence of an employee’s consent to a fundamental change will always be determined

on a case by case basis. This factual assessment can become particularly difficult when

the duty to mitigate is considered. For example, in Cayen v. Woodwards Store, the

British Columbia Court of Appeal considered whether an employee transfer (which the

employee alleged was a demotion) amounted to a constructive dismissal, the Court

noted:

In my judgment, a very heavy burden would rest upon the employer to show that there

was a real waiver… the employer cannot have it both ways, that is mitigation and waiver,

and it will be rare indeed when an employer will succeed on a plea of waiver after an

employee has mitigated his or her damages after accepting a new position. It would be

different, of course, if the employee continues in the new employment after the expiration

of a reasonable period roughly equivalent to what the law would impose by way

reasonable notice.8

• 6 Ferdinand and Usz v. Global Driver Services Inc., [1998] O.J. No. 4225

• 7 Shah v. Xerox Canada Ltd., [2000] O.J. No. 849 at para 8 (per the Court)

• 8 Cayen v. Woodwards Stores Ltd., [1993] B.C.J. No. 83 at para 41 (C.A.)

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The Ontario Court of Appeal has stated that “Allowing employees reasonable time to

assess the new terms before they are forced to take an irrevocable legal position not

only addresses their vulnerability, but also promotes stability and harmonious relations

in the workplace”9 Put another way, an employee should not be punished by an

imputation of consent on their behalf, when they have only been reasonably mitigating

their damages or assessing a change. The assessment of what is a reasonable time

period before an employee has waived their rights will always be contextual. In one

case, as little as two months was found to be a waiver while in another 6 months was

still mitigation.10 If an employee continues in changed employment but expressly

protests, a waiver will rarely be found to exist unless a considerable amount of time has

past.11

It is important to keep in mind that an employer’s unilateral change to a

fundamental/essential term and/or condition of employment can be lawful if the

employee is given reasonable notice of the termination of the employment relationship

coupled with an offer of re-engagement with changed terms.12

3. Is the breach a fundamental one?

The test for whether an employment term is a “fundamental term”is not a subjective

test. An employee’s personal distress as to the gravity of the change is not

determinative as to whether the change will ultimately viewed as a “fundamental

change”. The Supreme Court in Farber v. Royal Trust Co. stated that the court must

consider whether “a reasonable person in the same situation as the employee would

have felt that the essential terms of the employment contract were … substantially

changed”13 The contextual objective test set by the Supreme Court was applied by the

Ontario Court of Appeal in Smith v. Viking Helicopter Ltd. In this case, the Court of

Appeal found the trial judge to be in error for “concentrating on the state of mind of the

respondent in this case to the virtual exclusion of a consideration of the company's

announced policy.”14

Examples of changes to employment terms and/or conditions that could give rise to a

successful constructive dismissal claim include changes to the essential duties of the

employee, wages and benefits and location of work (assuming each are terms of the

contract).

• 9 Belton v. Liberty Insurance Co. of Canada, [2004] O.J. No. 3358 at para 26. (per Juriansz J.A.)

• 10 See Schellenberg v. Marzen Artistic Aluminium Ltd., [1986] B.C.J. No. 1190 and Garcia v. Newmar Windows

• Manufacturing (1996), 25 C.C.E.L. (2d) 114 (Ont. Ct. (Gen. Div))

• 11 Tilbe v. Richmond Realty Ltd., [1995] B.C.J. No. 954

• 12 see for example the discussion in Michaud v. R.B.C. Dominion Securities Inc. [2001] B.C.J. No. 711

• 13 Farber v. Royal Trust Co. at para 26.

• 14 see also Bowen v. Ritchie Bros. Auctioneers Ltd., [1999] O.J. No. 4102 (C.A.)

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Other Considerations

(i) Employer’s Intentions

An employer’s good intentions and/or no specific intentions to repudiate a

fundamental/essential term and/or condition of an employment contract are not sure-fire

defences to a constructive dismissal claim. The existence of bad intentions, however,

will almost always lead to an increase in the quantum of damages awarded to a plaintiff

in the context of a claim for constructive dismissal. The Supreme Court in Farber v.

Royal Trust put it this way:

… for the employment contract to be resiliated, it is not necessary for the employer to

have intended to force the employee to leave his or her employment or to have been

acting in bad faith when making substantial changes to the contract’s essential terms.

However, if the employer was acting in bad faith, this would have an impact on the

damages awarded to the employee.15

Similarly, the Ontario Court of Appeal in Cox v. Royal Trust Corp. of Canada held that:

While I totally agree with the trial judge that the defendant acted bona fide and with

genuine concern both for the company and the plaintiff, I do not read Canadian Bechtal

Ltd. v. Mollenkopf, C.C.E.L. 95, as saying that a properly motivated company cannot be

liable for constructive dismissal. It is one of the factors, and an important one, but here

does not override the very fundamental changes… 16

Good intentions may only become relevant if the court implies a contractual term that

allows an employer to “reasonably”re-organize the workplace. As one author has

noted:

Today the courts appear to be more ready than before to imply a right to reassign duties

where there are pressing business reasons for it, and where the court feels that

management is acting “reasonably.”17

(ii) Anticipatory Breaches

Anticipatory breaches allow a party to sue on the repudiation of a contract prior to the

actual act of repudiation. When one party has made a “clear” or “absolute”

announcement or indication that they intend to not be bound by the terms of the

contract at a future date, the doctrine of anticipatory breach allows the innocent party to

consider the contract repudiated at that moment.

In Wronko v. Western Inventory Service Ltd. the Ontario Court of Appeal held that a

letter indicating a future unilateral change to express termination provisions in an

employment contract was a repudiation of the contract based on anticipatory breach.18

At the time of the letter the employee could have considered the contract repudiated

and sued for constructive dismissal.

• 15 Farber v. Royal Trust Co., [1997] 1 S.C.R. 846 at para 27.

• 16 Cox v. Royal Trust Corp. of Canada, [1989] O.J. No. 675 at 5.

• 17 Ball, Stacey Employment Law in Canada, section 13-38

• 18 Wronko v. Western Inventory Service Ltd. (2008), 90 O.R. (3d) 547 at para 39 (C.A.)(per Winkler C.J.O.)

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(iii) Mitigation

The duty to mitigate in a constructive dismissal case is the same as the duty to mitigate

in a standard wrongful dismissal case.19 The Supreme Court, quoting from Farquhar in

Evans v. Teamsters Local Union No. 31, noted that “the critical element is that an

employee ‘not [be] obliged to mitigate by working in an atmosphere of hostility,

embarrassment or humiliation’”20 The Court goes on to state that:

I note that the nature of this inquiry increases the likelihood that individuals who are

dismissed as a result of a change to their position (motivated, for example, by legitimate

business needs rather than by concerns about performance) will be required to mitigate

by returning to the same employer more often than those employees who are terminated

for some other reason. This is not, however, because these individuals have been

constructively dismissed rather than wrongfully dismissed, but rather because the

circumstances surrounding the termination of their contract may be far less personal than

when dismissal relates more directly to the individuals themselves.

The focus in any dispute about mitigation in the context of a constructive dismissal claim

will be whether the employee’s refusal to work for the employer during the notice period

would subject the employee to humiliation and/or degradation such that the employee

can refuse the work rather than continue in an effort to mitigate their damages. Although

the Supreme Court’s comments in Evans suggest that the test for whether an employee

should return to an employer is an objective one, it still requires a contextual case by

case analysis. For example, in Loehle v. Purolator Courier Ltd.21, the Ontario Superior

Court determined that the employee alleging constructive dismissal had in fact been

constructively dismissed but because returning to work for the employer would not have

resulted in “hostility, embarrassment or humiliation”, the employee had an obligation to

mitigate his damages by continuing to work for the former employer. By refusing to

accept what was found to be an objectively reasonable work offer, the employee was

denied damages.

Conclusion

In today’s ever changing and dynamic workplace environments, understanding the

nuances of a constructive dismissal claim is essential to the practice of employment

law. In order to establish a constructive dismissal claim, the plaintiff must be able to

establish what the express and/or implied terms and/or conditions of the employment

contract are, that one or more of those terms and/or conditions have been breached

and that the breached terms and/or conditions form a fundamental part of the

employment contract. An employer’s good intentions in making the impugned change

will largely be irrelevant unless the court implies a term into the contract that the

employer can “reasonably”alter the terms of employment. Anticipatory breaches and

mitigation are two important considerations that will undoubtedly play a significant role

in the litigation of any construction dismissal claim.

• 19 Evans v. Teamsters Local Union No. 31, 2008 SCC 20 at para 27.

• 20 Ibid at para 30.

• 21 Loehle v. Purolator Courier Ltd., [2008] O.J. No. 2462