Constructive Dismissal - 815-1-IPG-033
Effective Date: September 25, 2000
The application of the unjust dismissal, severance pay and individual terminations of employment provisions in Part III of the Canada Labour Code to cases of constructive dismissal.
There is a need to clarify the scope of the term "dismissal" in section 240 of Division XIV, and the term "terminates the employment of an employee" in section 230 of Division X and section 235 of Division XI.
- Do the terms "dismissal" and "terminates the employment of an employee" include constructive dismissals?
- How can an inspector determine whether a complaint amounts to a constructive dismissal?
a. Constructive Dismissals are Covered Under Part III of the Canada Labour Code
The unjust dismissal provisions in section 240 of the Canada Labour Code cover unjust constructive dismissals as well as those unjust dismissals made by the open unambiguous action of the employer.
This issue was resolved conclusively in the Federal Court of Appeal decision in Srougi v. Lufthansa German Airlines,  F.C.J. Nº 539. According to the Srougi decision, once it has been established that a constructive dismissal has occurred, there is no question that the unjust dismissal provisions apply.
The individual terminations of employment provisions in sections 230 to 234 of the Code, and the severance pay provisions in sections 235 to 237, may also apply in cases of constructive dismissal.
Unfortunately, the characterization of a constructive dismissal is not always straightforward.
b. Definition of Constructive Dismissal
The phrase "constructive dismissal" describes situations where the employer has not directly fired the employee. Rather the employer has failed to comply with the contract of employment in a major respect, unilaterally changed the terms of employment or expressed a settled intention to do either thus forcing the employee to quit. Constructive dismissal is sometimes called "disguised dismissal" or "quitting with cause" because it often occurs in situations where the employee is offered the alternative of leaving or of submitting to a unilateral and substantial alteration of a fundamental term or condition of his/her employment. Whether or not there has been a constructive dismissal is based on an objective view of the employer's conduct and not merely on the employee's perception of the situation.
It is the employer's failure to meet its contractual obligations that distinguishes a constructive dismissal from an ordinary resignation. The seriousness of the employer's failure as well as the amount of deliberation apparent in its actions are also important factors.
The employer's action must be unilateral, which means that it must have been done without the consent of the employee. If it is not unilateral, the variation is not a constructive dismissal but merely an agreed change to the contract of employment. Generally, if the employee clearly indicates non-acceptance of the new conditions of employment to the employer, there has been a constructive dismissal only if the employee leaves within a reasonable (usually short) period of time. By not resigning, the employee indicates his/her acceptance of the new conditions of employment.
There have been rare and exceptional cases where courts have held that there has been a constructive dismissal even though the complainant remains in the employ of the employer. This includes, for example, cases where the employee continues to work under the new conditions in order to mitigate damages and either protests the new conditions explicitly or makes it clear that he or she still reserves the right to take legal action. In such cases the employee cannot be said to have condoned or accepted the change in working conditions. Furthermore, courts have held that an employee cannot be said to have condoned the change in working conditions if the employee formally commences legal proceedings in respect of the change while remaining in the employ of the employer. If the employee does not formally initiate proceedings but simply attempts to negotiate the matter while remaining at work, the employee cannot be said to have condoned the change as long as negotiations are ongoing.
For the purposes of determining whether or not a complaint has been filed within the 90-day time period as required by s.240(2), a constructive dismissal takes place at the time the employer changes the terms and conditions of employment. In order to be admissible, the complaint must be filed within 90 days of that time, unless the complainant qualifies for an extension of the time to file under s.240(3).
In cases of alleged unjust dismissal, if a doubt exists as to whether the complainant has been constructively dismissed the inspector shall proceed to assist the parties in reaching a settlement, and if no settlement is reached within a reasonable time, the complaint shall be referred to an adjudicator. This is consistent with paragraphs 6.3 and 7.2 of the Operations Program Directive 815-1 entitled Response to Complaints of Unjust Dismissal.
Complainants alleging constructive dismissal should be advised that they may wish to seek independent legal advice.
The following examples are of cases in which the Courts have found that an employee has been constructively dismissed. The examples are not exhaustive and the results will vary with the facts of each case and with the terms of each employment contract.
Changes in Powers or Duties
The most common cases of constructive dismissal are where the employee leaves as a result of material changes in powers or duties. Usually, a main area of responsibility is removed or the employee's duties are decreased; for example, a plant superintendent whose duties are confined to those of yard foreman. Such actions are in fact a dismissal in disguise, whether or not they are accompanied by changes in salary or job title. Commonly, this form of constructive dismissal involves a significant loss of prestige and status as a result of a corporate reorganization or change in reporting arrangements.
Threats and Suspensions
The employee's quitting in response to threats of dismissal or demotion has been held, in some cases, to constitute a constructive dismissal. However, mere encouragement to resign will not necessarily be sufficient. Similarly, a constructive dismissal may occur when an unfair suspension or reduction in salary creates an intolerable situation for the employee.
Reduced Hours, Salary, Status or Benefits
The employee's quitting due to a major reduction in an employee's hours of work or change in the location of employment is often sufficient to make up a constructive dismissal. However, there is no constructive dismissal where the employee is moved to another location in the same city or if the employee knew that potential relocation was part of the job.
A unilateral change in the employment status of a salesperson from employee to independent contractor has been held to be constructive dismissal. The withdrawal of a company vehicle may constitute a dismissal in disguise, if the vehicle is an essential work tool, and the employer does not have a good reason for its removal.
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