By Nadia Zaman

What if an employer suddenly reduces an employee’s salary by 30 per cent? Or announces that a person will no longer receive any bonuses?

Or if a worker is told he will be performing different duties from now on, ones he used to do before he received a promotion last year?

In these scenarios, the employee may have been constructively dismissed. That means an employer unilaterally makes a substantial change to a fundamental term of the employment agreement, such as compensation, job duties or job location.

While not every change will constitute a constructive dismissal, an employee is generally expected to make their employer aware of any alleged constructive dismissal and give it an opportunity to correct the situation.

A recent decision by the Supreme Court of British Columbia lays out the principles of constructive dismissal and shows that both the employer’s and the employee’s actions are critical in assessing whether or not the employee was constructively dismissed.

Facts

In Rampre v Okanagan Halfway House Society, the employee had worked for the non-profit agency for almost 23 years. In 2015, the employer was required to cut operational costs and proposed to reclassify his position and reduce his salary. Before the changes came into effect, the employee claimed to have been constructively dismissed.

The employer tried to find a resolution; however, that did not work out and the employee sought 23 months of severance. The employer then revoked its proposed changes and encouraged the employee to return to work. In a risky move, the employee refused and commenced litigation.

The court found that the employer had responded to the allegation of constructive dismissal by fixing the situation and it was unreasonable for the employee not to return to his previous position. Accordingly, the employee was held to have resigned and he was not entitled to any damages.

Legal principles

In coming to this decision, the court laid out the test to determine constructive dismissal:

• Was there a unilateral change by the employer that constituted a breach of the employment contract and substantially altered an essential term of the contract? This is an objective test.

   

• Did the employer engage in a course of conduct that would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract?

The court then emphasized the legal principles to be considered when determining whether an employee has been constructively dismissed:

• If the employer repudiates an employment contract, that does not automatically terminate that contract but confronts the employee with the choice to either a) affirm the contract and treat it as continuing, or b) to accept the wrongful repudiation and treat the contract as at an end.

   

• An anticipatory breach occurs when one party, through words or conduct, manifests an intention not to perform or not be bound by the provisions of the agreement that require performance in the future.

   

• If the employee decides to treat the contractual breach as a constructive dismissal, the employee must communicate that decision to accept the contract repudiation in a reasonable time.

   

• The employer then can reconsider its position and resile from the breach by giving notice that it intends to comply with the contract.

   

• If the employee voluntarily resigns, rather than being dismissed, the employee cannot claim wrongful dismissal.

   

• Whether or not a constructive dismissal has occurred is a question of fact based upon an objective assessment of all the evidence.

   

• The employee has the burden of proving a) that they have been constructively dismissed rather than having resigned, and b) their entitlement to damages.

   

• The employer has the burden of proving a failure to mitigate damages.

   

• If the employer offered the employee to return to work and the employee could have mitigated damages by doing so, then the employee cannot recover such damages provided such an offer was reasonable in all of the circumstances. An employee is not obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation.

   

• In some situations, it is unreasonable for an employee to decline to continue in employment through the reasonable notice period, while he or she looks for other work.

Takeaway

Constructive dismissal is a tricky area to navigate. Employers and employees are expected to fulfill their contractual promises in the employment relationship. Constructive dismissal occurs when the employer makes a unilateral change to a fundamental term of the contract.

However, there are several additional factors to consider:

• Did the employee accept the wrongful repudiation and treat the contract as at an end?
• Did the employee communicate that choice to the employer in a reasonable time?
• Did the employer reconsider its position and clearly communicate to the employee that it would no longer implement the changes and that it would comply with the contractual terms?
• Did the employee voluntarily resign?

Navigating a constructive dismissal situation can be extremely challenging, and there are many potential pitfalls. As an employer, you must understand what changes you can impose and what you can’t.

Nadia Zaman is an associate at Rudner Law in Toronto.