Constructive Dismissal - What Is It?

You have employed Mr. Jones for ten years in a senior position. Recently, your company decided to hire someone else, Brown, who has been doing various tasks that Jones used to do. Jones’ salary has not been reduced, but his duties and responsibilities have been. Jones’ co-workers see him as having been demoted. Jones is frustrated with this situation and decides to resign. Can Jones now sue your company for wrongful dismissal, claiming a severance package in lieu of notice, given that it was his decision to resign?

The above scenario is but one example of a common employment law situation known as “constructive dismissal”, a more subtle form of wrongful dismissal usually involving an employee resignation. To succeed in an action for constructive dismissal, the employee must prove on a balance of probabilities that his/her employer unilaterally changed a fundamental term of the employment contract without his/her consent.

Examples of constructive dismissal taken from Canadian case law include:

• the employer demoting an employee with or without a decrease in salary;
• the employer transferring an employee from a different country and then not providing the employee with the agreed upon training, performance review or bonus, as promised;
• the employee being asked to take on additional duties not originally included in his/her employment contract;
• the employer unilaterally reducing an employee’s salary without a similar reduction in job duties and responsibilities;
• the employer verbally abusing the employee and periodically threatening to fire the employee;
• the employer refusing to pay professional association fees.

In all cases of constructive dismissal, the court must determine what the terms of the employment contract were, whether these terms were fundamental, and whether the employee consented to any of the changes to the terms of the contract. This will always be a question of fact and usually involves the credibility of both the employer and employee. Accordingly, if an employer changes the terms of employment or makes an employee’s work environment so negative that the employee has no choice but to resign, that employee may be entitled to damages based on constructive dismissal. The prudent employer will therefore seek the agreement of the employee before making fundamental changes to the employment contract. In all cases, an employer should consult with a lawyer before changing the terms and conditions of an employees’ contract, as each case is decided upon its own facts.