Constructive dismissal - IPG-033

Effective date: September 25, 2000

Revised date: June 20, 2024

On this page

• Subject
• Issue
• Interpretation
• Examples

Subject

Applying the following provisions in Part III of the Canada Labour Code (Code) to cases of constructive dismissal:

• unjust dismissal
• severance pay and
• individual terminations of employment

Note: “employees” also includes “interns”. Student interns are not subject to the interpretation of this Interpretation, Policy, and Guideline (IPG).

Issue

There is a need to clarify the scope of the terms:

• "dismissal" in section 240 of Division XIV, and
• "terminates the employment of an employee" in section 230 of Division X and section 235 of Division XI

This IPG addresses the following:

• if the terms "dismissal" and "terminates the employment of an employee" include constructive dismissals
• how to determine whether a complaint amounts to a constructive dismissal

Interpretation

Constructive dismissals are covered under Part III of the Code

The unjust dismissal provisions in section 240 of the Code cover unjust constructive dismissals. They also cover 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, [1988] 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 may also apply in cases of constructive dismissal. This includes provisions in sections 230 to 234 of the Code, and the severance pay provisions in sections 235 to 237.

Unfortunately, the characterization of a constructive dismissal is not always straightforward.

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". This is because it often occurs in situations where the employer offers the employee the alternative of:

• leaving, or
• submitting to a unilateral and substantial alteration of a fundamental term or condition of their employment

Whether or not there has been a constructive dismissal is based on an objective view of the employer's conduct. It is not merely on how the employee perceives 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 the employer must do it 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.

If the employee clearly indicates non-acceptance of the new conditions of employment to the employer, there has been a constructive dismissal. However, this is only if the employee leaves within a reasonable period (usually short). By not resigning, the employee indicates he accepts the new conditions of employment.

There have been 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 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 if the employee:

• formally commences legal proceedings in respect of the change while remaining in the employ of the employer, or
• does not formally initiate proceedings but simply attempts to negotiate the matter while remaining at work

A constructive dismissal takes place at the time the employer changes the terms and conditions of employment. In order to be admissible, the complainant must file the complaint within 90 days of that time as required by subsection 240(2) of the Code.

Exception: This does not apply if the complainant qualifies for extending their time to file under subsection 240(3) of the Code.

In cases of alleged unjust dismissal, a doubt may exist as to whether the complainant has been constructively dismissed. In these cases, the Labour Program shall proceed to assist the parties in reaching a settlement. If the parties do not reach a settlement within a reasonable time, the Labour Program, on the request of the complainant, will refer the complaint to the Canada Industrial Relations Board.

Complainants alleging constructive dismissal should be advised that they may wish to seek independent legal advice.

Examples

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, the employer removes a main area of responsibility or decreases the employee’s duties. For example, an employer confines a plant superintendent’s duties to those of yard foreman. Such actions may constitute a constructive dismissal, 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

In some cases, an employee's decision to quit in response to threats of dismissal or demotion has been found 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

It is often considered a constructive dismissal if an employee quits due to the following:

• a major reduction in their hours of work, or
• change in the location of employment

There is no constructive dismissal if:

• the employer moves the employee to another location in the same city, or
• the employee knew that potential relocation was part of the job

In some cases, an employer’s decision to unilaterally change the employment status of a salesperson from employee to independent contractor has been found to constitute a constructive dismissal. The withdrawal of a company vehicle may also constitute a constructive dismissal if the vehicle is an essential work tool, and the employer does not have a good reason for its removal.

Related links

• Termination, layoff or dismissal