Potter v. New Brunswick Legal Aid Services: Constructive Dismissal Update

A constructive dismissal action can be a risky undertaking.  Part of the problem is in satisfying the test for a constructive dismissal.  The Supreme Court of Canada set out this test in its decision in Farber v. Royal Trust Co., that is, “a fundamental or substantial change to an employee’s contract of employment.”  A change in hours of work or a transfer to another location does not necessarily equate to a fundamental or substantial change.  Proving abusive conduct often entails a heavy evidentiary burden.  Recently, however, the Supreme Court of Canada released a decision that provides further clarity on the test for constructive dismissal.

In Potter v. New Brunswick Legal Aid Services, 2015 SCC 10, the Supreme Court of Canada considered whether an indefinite administrative suspension with pay, but without any explanation, constitutes a unilateral act that amounts to a fundamental or substantial breach of an employment contract.  In this decision, the court identified two circumstances in which a constructive dismissal can take place:

  1. A single unilateral act that breaches an essential term of the contract; or
  2. A series of acts that, taken together, show that the employer intended to no longer be bound by the contract.

In each circumstance, the test to determine if a constructive dismissal has taken place has two branches:

  1. The court must identify an express or implied term of the employment agreement that has been breached.  This first branch is comprised of two steps:
    • The employer’s unilateral change must be found to constitute a breach of the employment contract; and
    • If so, it must be found to substantially alter an essential term of the contract.  In doing so, the court must conclude that, at the time that the breach occurred, a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed.
  2. The court must then determine whether that breach was sufficiently serious to constitute constructive dismissal.  An employer’s conduct will constitute constructive dismissal if it shows that the employer intended not to be bound by the contract.

This decision makes it clear that the test for constructive dismissal contains an objective or “reasonable person” element. What is considered a fundamental or substantial breach is not relative to the employee in question.

The court concluded that the indefinite administrative suspension  of the employee, albeit with pay, nevertheless constituted a constructive dismissal.  Justice Wagner, for the court, wrote, “no employer is at liberty to withhold work from an employee in bad faith or without justification.”

Practical Considerations

The take-aways from this case include the following:

  1. Although the test for constructive dismissal is now more detailed, constructive dismissal actions remain no less risky.  It will take some time before we see how trial judges apply the test.
  2. The Supreme Court of Canada referred to its decision in Bhasin v. Hrynew, a decision I previously wrote about, and emphasized that an administrative suspension cannot be justified in the absence of a basic level of communication with the employee, acting in good faith by being honest, reasonable, candid and forthright.  Failing to inform the employee of the reason for the suspension is simply not forthright.

This article is intended only to provide general information and does not constitute legal advice. Should you require advice specific to your situation, please feel free to contact me to discuss the matter further.