Constructive Dismissal: The Bane of An Employment Lawyer’s Existence

Jan 12, 2016

Constructive Dismissal: The Bane of An Employment Lawyer’s Existence

Definition of Constructive Dismissal:  The Traditional Definition

Until recently, a constructive dismissal was found to take place when an employer breaches an implicit or explicit term of contract and that breach “substantially alters an essential term of the contract.” The judge would apply an objective test; that is, at the time of the breach, would a reasonable person in the same situation as the employee have felt that the essential terms of the contract were being substantially changed?

Definition of Constructive Dismissal: The New Definition

In 2015, the Supreme Court of Canada recognized a second type of constructive dismissal. This kind of constructive dismissal occurs if an employee can show the employer no longer intends to be bound by the employment contract; the employee does not have to show that a specific term of the employment contract has been breached. For more information on this case, read my previous post “Supreme Court of Canada Update: Administrative Suspension Equals Constructive Dismissal.”

Traditional Constructive Dismissal Cases

Until the last few years, most constructive dismissal cases involved changes in compensation, and/or changes in job duties. Recently, however, the courts have expanded constructive dismissal law to other situations.

Non-Traditional Constructive Dismissal Cases

Here are three non-traditional constructive dismissal cases:

  1. Unpaid Suspensions

It is generally good human resources practice to progressively discipline an employee and one step in this process is usually a suspension. Unless the employee agrees, the employer has the right to suspend him without pay, however, such a suspension is generally a termination at common law. Accordingly, we suggest that an employer include such a term of employment in an employment contract.

  1. Temporary Layoffs

Although a “temporary” layoff is permitted under the Employment Standards Act, such a layoff often constitutes a termination at common law unless the employee has agreed that a temporary layoff is a term of his employment. Accordingly, we suggest that an employer include such a term of employment in an employment contract.

  1. Paid Administrative Leaves

In 2015, the Supreme Court of Canada concluded that an employer does not generally have the right to withhold work from an employee unless it can demonstrate that it is reasonable and justified. Furthermore, this court stated that an administrative suspension will usually not be justified where there has been no communication with the employee about the reason. Accordingly, we suggest that an employer provide reasons for the leave to the employee before the leave commences or include such a term of employment in an employment contract.

For more information on constructive dismissal law, read our other blogs on constructive dismissal.

For the past 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship including constructive dismissal cases. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

There are many ways to attack the termination clause in an employment contract. 

I am now surprised if employee counsel does not claim that their client’s  termination clause is not legally enforceable - usually because the termination clause does not allegedly comply with the Employment Standards Act.

This blog considers a case, McKercher v Stantec Architecture Ltd., 2019 SKQB 100, where an employee successfully attacked the termination clause in his contract because he did not explicitly agree to it after being promoted. 

The Facts

In 2006, Mr. McKercher commenced employment as a staff architect. The termination clause in his employment contract stated: 

Termination other than for cause will be with notice or pay in lieu of notice, based on your length of service. If the Employer terminates your employment for other than just cause you will receive the greater of:

  1. a)   Two weeks notice or pay in lieu of notice during the first two years of employment increasing by one week for each additional completed year of employment to a maximum of three months notice or pay in lieu of notice.

      or

  1. b)   The minimum notice of termination (or pay in lieu of notice) required by applicable statutes.

Eleven years later, when Mr. McKercher was employed as a Business Centre Sector Leader, his employment was terminated. The employer paid him the three months termination pay he was owed under his employment contract.

 

Another way to attack a termination clause: What is the changed substratum doctrine?

An Ontario judge in a 2012 case, MacGregor v National Home Services, 2012 ONSC 2042 (CanLII), described this legal doctrine as follows: "The changed substratum doctrine … provides that if an employee enters into an employment contract that specifies the notice period for a dismissal, the contractual notice period is not enforceable if over the course of employment, the important terms of the agreement concerning the employee’s responsibilities and status has significantly changed."

 

The rationale for this doctrine has been described by one judge, Schmidt v AMEC Earth & Environmental Ltd., 2004 BSCS 2012 (CanLII), as follows: "In my view, it was incumbent on the defendants to advise Mr. Schmidt that they intended to continue to rely upon the termination provision set out in the Agreement when substantial changes in his employment occurred. This would have allowed him to consider the matter and to negotiate for other terms. If the defendants wished to continue to rely on the termination provisions there ought to have been a ratification of the provisions as the nature of Mr. Schmidt’s employment changed."

 

Decision

The judge hearing this case relied on the following factors when deciding not to enforce the termination clause in the employment contract: ”...there is no evidence that (the employer) made it clear to the (employee) that the notice of termination provisions were intended to apply to the positions to which he was promoted. The employment agreement contains no express wording to this effect, nor does it contain any wording to support the inference of such an intent. Further, and in keeping with the analysis in Schmidt, the Court received no evidence that, as it promoted the plaintiff, SAL reasserted its understanding and expectation that the notice of termination limit would remain in effect.”

 

Lesson to be learned:

An employer should make it clear that the termination clause in an employment contract applies when an employee is promoted. This expression of this intent should be in writing and should be clear and unambiguous. I recommend that an organization’s employment be reviewed by an employment lawyer every year or two. If your employment contract does not address this issue then think about doing so the next time it is reviewed.

 

For 30 years, Doug MacLeod of   the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

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