Demystifying Constructive Dismissal


The concept of constructive dismissal causes a lot of confusion and is often misunderstood by both employees and employers. In 2015, the Supreme Court of Canada in Potter v. New Brunswick (Legal Aid Services Commission), provided a comprehensive overview of the law of constructive dismissal in non-unionized work environments.

Constructive dismissal occurs in instances where an employer’s conduct shows an intention of no longer wishing to be bound by the employment contract. There are two distinct branches of constructive dismissal. 

The first branch occurs when an employer unilaterally changes or breaches an express or implied term of the employment agreement and such change or breach is sufficiently serious.  Most often, the change or breach  involves an employee’s compensation, work duties or place of work.  It is important to note that not every change or breach by an employer will amount to constructive dismissal; the question is one of degree. For example, a change from earning $80,000 to $78,000 per year or the addition of a few minor work duties would probably not be sufficient to establish constructive dismissal. However, the deletion, without prior notice, of a bonus that accounts for 25 per cent of an employee’s overall annual compensation would most likely meet the threshold.

The second branch of constructive dismissal does not require a specific substantial change to an employee’s contract, but consists of employer conduct, that when viewed in all the circumstances, would lead a reasonable person to conclude that the employer no longer intends to be bound by the employment contract.  Put another way, the employer’s conduct and treatment of the employee must be such that it has made continued employment for the employee intolerable.  It should be noted that “intolerable” is not synonymous with “difficult”.  The employee’s workplace must be so unendurable, whether it is due to co-worker harassment, work overload or some other component of the employee’s work, that a reasonable person would not expect the employee to continue with the employment relationship in its current state.

Where either of the two constructive dismissal scenarios occur, the employee has two options: (1) accept the employer’s conduct or changes made, or (2) treat the employment relationship at an end and sue the employer for wrongful dismissal. Since the employee has not been formally dismissed by the employer, the act of the employee treating the contract at an end by resigning is referred to as constructive dismissal.

While many employees may believe that they have a claim for constructive dismissal, an employee must be cautious before taking the plunge and resigning.  First, in order to receive damages for wrongful dismissal, many employees commence formal civil actions against their former employer.  However, civil actions can be long and costly.  Accordingly, even if the employee has a good case, it can be a long time before any monetary award is obtained.  Second, the burden rests with the employee to prove he or she was constructively dismissed and is thereby entitled to damages for wrongful dismissal. If deemed unsuccessful, the employee may receive no financial award and has resigned from employment for no legal reason. 

The law of constructive dismissal is complex and whether an employee has in fact been constructively dismissed will depend on the individual and unique facts. Although the Supreme Court of Canada’s decision provides more clarity by creating an analytical framework for constructive dismissal claims, each case will be fact specific. It is important to obtain appropriate legal advice prior to taking any steps with respect to a constructive dismissal.