Supreme Court of Canada Update: Administrative Suspension = Constructive Dismissal

On March 6, 2015 the Supreme Court of Canada released its decision Potter v. New Brunswick Legal Aid Services Commission.

The Facts

David Potter signed a seven year contract to work as an Executive Director of a government agency. The relationship soured and the parties started negotiations to end the contract early.   Potter then went on sick leave. Before he returned to work, the employer placed him on an indefinite administrative suspension with pay. At the same time, the employer secretly asked the government to fire Potter for cause.  The employer refused to tell Potter why he had been placed on an administrative suspension and assigned his duties to another person.  Potter quit and sued for constructive dismissal.

Two Types of Constructive Dismissal

The SCC stated there are two ways an employee can be constructively dismissed.

1. Repudiation by Breach of a Specific Term in the Employment Contract

Under this approach (which is the more common approach), a constructive dismissal takes place when the employer breaches an implicit or explicit term of contract and that breach “substantially alters an essential term of the contract.” The Court applies 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?

In this case, the SCC concluded that the employer did not have an implicit or explicit right to place Mr. Potter on a paid administrative suspension. As far as non-disciplinary suspensions are concerned, the Court stated that an employer never has a right to withhold work from an employee unless it can demonstrate that it is reasonable and justified. Furthermore, the Court said that an administrative suspension will usually not be justified where there has been no communication with the employee about the reason. In this regard, the court noted: “At a minimum, acting in good faith in relation to contractual dealings means being honest, reasonable, candid, and forthright.”

This decision appears to impose an implied contractual duty on employers to provide an employee with reasons before imposing a paid administrative suspension.

2. Repudiation Without a Specific Breach of the Employment Contract

Under this approach, an employee can prove a constructive dismissal if he or she can show the employer no longer intended to be bound by the contract. In other words, the employee does not have to show that a specific term of the contract has been breached.

In this case, the minority judgment by Justice Cromwell and the Chief Justice applied the second approach.  They ruled that the employer’s suspension of Potter, while it attempted to bargain a buy out of his contract, would have demonstrated to a reasonable person that the employer did not intend to continue to be bound by the contract in the future. Unlike the majority opinion, however, the minority opinion would have allowed Mr. Potter to rely on evidence that he was unaware of at the time he quit. In particular, Mr. Potter could rely on the evidence that his employer was trying to fire him for cause even though he was not aware of this information when he quit.  

Lessons to Be Learned:

1. Employers should consider adding a term in their standard employment contracts which allows the employer to place an employee on a paid administrative suspension.
2. An employer’s duty to act in good faith means being honest, reasonable, candid, and forthright and failing to give reasons for imposing an involuntary paid suspension generally breaches this duty.
3. Constructive dismissal cases will continue to be the bane of an employment lawyer’s existence. In this case, the trial judge concluded the employee quit. The court of appeal upheld the trial judge’s decision. The SCC, however, reversed both lower court decisions and ruled that Mr. Potter had been constructively dismissed.

For the past 25 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]