A constructive dismissal occurs when an employer unilaterally makes a substantial change to terms of an employee’s employment without the implied or express consent of the employee. When this occurs, the employee has the option to resign and consider the employment relationship terminated. The law treats these employees as terminated without cause and entitles them to the same severance package as an individual who is wrongfully dismissed.

Note: This is an exceptionally complex area of law. Do not resign without consulting an Employment Lawyer.

A commonly referred to constructive dismissal definition comes from the 1997 Supreme Court of Canada decision, Farber v. Royal Trust Co., 1997 CanLII 387 (SCC), [1997] 1 SCR 846 at paragraph 24;

 “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.”

The test for constructive dismissal was set out by the Supreme Court of Canada in Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (CanLII), [2015] 1 SCR 500 as follows:

“The first branch of the test for constructive dismissal, the one that requires a review of specific terms of the contract, has two steps:  first, the employer’s unilateral change must be found to constitute a breach of the employment contract and, second, if it does constitute such a breach, it must be found to substantially alter an essential term of the contract. For that second step of the analysis, the court must ask whether, at the time that the breach occurred, a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed. In determining this, a court must not consider evidence consisting of information that was neither known to the employee nor reasonably foreseeable.

Constructive dismissal can take two forms:  that of a single unilateral act that breaches an essential term of the contract, or that of a series of acts that, taken together, show that the employer intended to no longer be bound by the contract. In all cases, the primary burden will be on the employee to establish constructive dismissal, but where an administrative suspension is at issue, the burden will necessarily shift to the employer, which must then show that the suspension is reasonable or justified. If the employer cannot do so, a breach will have been established, and the burden will shift back to the employee at the second step of the analysis”

The following are the common signs of constructive dismissal:

• Change in work hours / shift: This may occur where an employer increases the length of your shifts, changes you from a 9 to 5 to overnights etc.
• Demotion: An employer cannot unilaterally demote an employee. This often occurs when the employer after moving you into a role decides they want to move someone else into the role and / or that you are not suited for the role.  There are cases in which changing an employee’s reporting relations and / or reducing an employee’s job responsibilities was also sufficient to trigger a constructive dismissal.
• Failing to pay an employee: This can include a failure to pay Vacation Pay, Overtime pay, Salary etc.
• Layoffs: A temporary layoff is typically not legal at common law unless the employee has previously acquiesced to a layoff, their contract provides for layoffs or they work in specific seasonal industries which allow layoffs. For more information on layoffs read our articles on “layoffs” & “coronavirus layoffs.”
• Reducing Wages or Compensation: Your employer cannot unilaterally reduce your salary, bonuses, or other forms of compensation. This type of constructive dismissal often arises where an employer decides to unilaterally reduce salary, or the employer overhauls the bonus system in a way which is highly unfavourable to the employee. A small reduction in wages may not be sufficient to trigger a constructive dismissal. 
• Relocation of an Employee’s workplace: There are several factors that go into whether a relocation is an acceptable change in an employment contract. If the employee is 60 years old and relies on public transport a small change in location could be seen as being sufficient to claim constructive dismissal. For a younger employee with a car this same change may not be grounds for a constructive dismissal.
• Toxic / Hostile Work Environment: An employee who is subject to discrimination, harassment, threats, unfair treatment etc. may be entitled to resign and claim constructive dismissal. A constructive dismissal due to these reasons may entitle employees to additional damages. (Punitive damages, human rights damages, moral damages)

In Wronko v. Western Inventory Service Ltd., 2008 ONCA 327 (CanLII) Justice Winkler et al outlined the 3 options employees have when an employer attempts to unilaterally make a fundamental change to the employment contract at paragraphs 34-36 as follows:

• “First, the employee may accept the change in the terms of employment, either expressly or implicitly through apparent acquiescence, in which case the employment will continue under the altered terms.
• Second, the employee may reject the change and sue for damages if the employer persists in treating the relationship as subject to the varied term. This course of action would now be termed a “constructive dismissal”, as discussed in Farber, although this term was not in use when Hill was decided.
• Third, the employee may make it clear to the employer that he or she is rejecting the new term. The employer may respond to this rejection by terminating the employee with proper notice and offering re-employment on the new terms. If the employer does not take this course and permits the employee to continue to fulfill his or her job requirements, then the employee is entitled to insist on adherence to the terms of the original contract.”

Usually to claim for constructive dismissal an employee will have to resign from their employment. The employee will have the obligation of proving on the balance of probabilities that they have been constructively dismissed. If the employee fails to do this, they will be found to have resigned and not be entitled to any severance or termination pay. Additionally, the employee may need to accept a recall to work or risk being found to have failed to mitigate.

The employer can try to see if the employee will agree or acquiesce to the change(s) in the first place. They do run the risk that the employee will reject the change and resign while claiming constructive dismissal. The employer can respond by offering to recall the employee and foregoing the changes. This will create pressure on the employee to accept in order to mitigate their damages. However, there is risk for the employer that the courts will find that the employee did not have to return to work in order to mitigate their damages.

Another technique which can be used by employers is to provide clear notice to the employee that change(s) will occur on X day in the future. This should be as long or longer than what the employee’s common law notice period would be. To clarify if Bob is entitled to 6 months common law notice then Bob should be clearly and without ambiguity advised that the following changes will happen “6 months from now.” This should be done in writing and with the assistance of an Employment Lawyer.

A third technique which can be used by the employer is to draft an employment contract which allows for changes. It should be noted that there are no guarantees that the court will accept that these changes are valid as there is usually a considerable difference in bargaining power between most employees and employers. This technique was alluded to in Farber v. Royal Trust Co., 1997 CanLII 387 (SCC), [1997] 1 SCR 846 at paragraph 25 as follows:

“On the other hand, an employer can make any changes to an employee’s position that are allowed by the contract, inter alia as part of the employer’s managerial authority.  Such changes to the employee’s position will not be changes to the employment contract, but rather applications thereof.  The extent of the employer’s discretion to make changes will depend on what the parties agreed when they entered into the contract. “

You will get the same compensation as if you were terminated without cause and were subject to a wrongful dismissal except in specific situations. The following four factors will be considered in determining the compensation you are entitled to:

• Character of the Employment: A higher position employee will typically be entitled to a longer notice period.
• Age of the Employee: An older employee will typically be entitled to a longer reasonable notice period.
• Length of Employment: A long term employee will typically be entitled to a longer reasonable notice period.
• Availability of Similar Employment: An employee with less similar employment opportunities will typically be entitled to a longer reasonable notice period. (Vice president vs. fast food cashier) There are significantly less jobs available at the Vice President level as opposed to that of a fast-food cashier. The courts recognize that it will likely take a Vice President a longer period of time to find a comparable job.

It is important to note that these are the factors that go into determining your common law reasonable notice period. A properly drafted employment contract may limit your rights to compensation provided it does not run afoul of the Employment Standards Act. For more information on your compensation entitlements if you are subject to a constructive dismissal read our “Guide to Wrongful Dismissal.”

1. Where the employer acts with bad faith. The Supreme Court of Canada acknowledged that bad faith may allow for increased damages at paragraph 27 of the Farber decision as follows: “Moreover, 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.”
2. The constructive dismissal relates to human rights issues.
3. You were subject to a harassment, a toxic work environment, discriminated against, bullied
4. You were induced. This occurs where your employer effectively poaches you from another company. For more information on inducement read our article on “Inducement.”

Cases involving constructive dismissal are more likely to be litigated than cases involving a wrongful dismissal. In wrongful dismissal cases usually the only issue in play is the size of the severance package that the former employee is entitled to. As a result, employers are more likely to be willing to negotiate prior to the commencement of a proceeding or at the early stages of a proceeding.

In a constructive dismissal case usually, the question will be raised as to whether the employee is even entitled to a severance package at all. Many employees will take the position that the employee has resigned. As a result, a constructive dismissal can lead to more prolonged, expensive, and higher risk litigation for the employee. For this reason, some employment lawyers will advise employees on steps to take to be terminated without cause.

Employment lawyers will often provide advice on building a case for constructive dismissal. Here are some general tips:

• Put everything in writing: When you reject a substantial change to your employment contract do not only verbally tell HR, put it in writing. Verbal evidence is far less effective because witness memory declines over time and it can be easily disputed.
• Take contemporaneous notes: Whenever something relevant occurs write it down and document the time and place it occurred. Do not wait till the end of the week to write down all the occurrences of that week. If you take notes right after the event has occurred and it is fresh in your head those notes will be more believable and effective in boosting your case.
• Contact an Employment Lawyer: An employment lawyer can assist you in taking the necessary steps. Trying to build a case for constructive dismissal with an Employment lawyer still has risk. Doing it without the assistance of an Employment lawyer is extremely risky.
• Do not do nothing: The number one mistake people make is they drag their feet. An employer will fundamentally change their employment contract and the employee for a variety of reasons will not do anything. By doing nothing you risk being found to have acquiesced to the change. You typically will have more latitude in terms of speed in which you need to respond to a change in situations which are less obvious. An employee who has their pay reduced by 35% will typically have a very short window of time to respond. By contrast an employee who is told they no longer report to the VP of Sales but to the Director of Sales may have a bit longer to respond to the change. In any event you should seek the assistance of an Employment Lawyer immediately.