SCC Clarifies Constructive Dismissal and Employee Suspensions

March 31, 2015

( Disponible en anglais seulement )

A new Supreme Court of Canada (“SCC”) decision provides guidance with regard to constructive dismissals and employee suspensions. In particular, it finds that employers must provide a business justification for administrative suspensions with pay or else risk being deemed to have constructively dismissed the suspended employee.  To reduce this risk, charities and not-for-profit organizations should take account of this ruling when considering whether they are justified in administratively (i.e. non-disciplinarily) suspending their employees.

Constructive dismissal arises when an employee, who has not been expressly terminated, claims the employer’s actions amount to a repudiation of the employee’s employment contract. These cases result in a claim for pay-in-lieu of termination notice, and sometimes, depending on the severity of the employer’s actions, aggravated damages.

In a non-unionized employment context, employee suspensions often create uncertainty as to whether the employer has authority to suspend the employee or whether the suspension amounts to constructive dismissal.

While the SCC’s latest decision and comments do not answer all questions or provide any new rights with regard to constructive dismissal and employee suspensions, they do provide a new analytical framework and some clarity on these topics.  This is important because the stakes are often significant when an employee claims constructive dismissal – a big pay out or a deemed voluntary resignation.

Background

In the case in question, Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (CanLII) (« Potter« ), the employer suspended an employee with pay indefinitely while the parties negotiated a buyout of the employment contract just prior to the employee’s return from sick leave. The employee claimed the suspension constituted constructive dismissal and commenced litigation. The employer argued that the employee’s actions in withdrawing from negotiations and suing the employer amounted to voluntary resignation.

Before reaching the SCC, both lower courts agreed with the employer, determining that the employee had resigned and was not constructively dismissed. However, the SCC granted the appeal, determining that the employer had neither the express authority to suspend the employee, nor had it provided a reason for the suspension. Therefore, the suspension was not reasonable and justified, and, thus, constituted a constructive dismissal.

Constructive Dismissal

The SCC states in Potter that constructive dismissal can take two forms:

  1. a single unilateral act by the employer that breaches an essential term of an employee’s employment contract, such as changes to the employee’s compensation, duties or place of work; or
  2. a series of acts by the employer that, taken together, show the employer no longer intends to be bound by the employment contract, such as when the employer’s conduct makes continued employment intolerable for the employee.

In both instances, the employer’s perceived intention to no longer be bound by the employment contract gives rise to the breach.

Non-Unionized Employee Suspensions

The SCC states in Potter that an employee suspension is not wrongful if the employer has the express or implied authority to suspend the employee. Importantly, however, where the suspension imposed is non-disciplinary in nature, the onus is on the employer to prove that the employer had express or implied contractual authority to impose the suspension. If the employer proves it had express contractual authority to suspend an employee, then the suspension may not be deemed to be a breach of the contract. For the employer to prove it had implied contractual authority to suspend the employee, it must demonstrate that the suspension was reasonable and justified.

The SCC sets out factors to consider when determining if a suspension under an implied authority is reasonable and justified:

  • the duration of the suspension;
  • whether the suspension is with pay; and
  • whether the employer demonstrated good faith, including the demonstration of legitimate business reasons for the suspension.

With regard to the « good faith » assessment, the SCC states that not providing the employee with reasons for the suspension is not acting in good faith. In doing so, the SCC has effectively suggested that all parties in an employment law contract are expected at law to be honest, reasonable, candid and forthright in executing the contract. Exactly how this principle will be applied beyond Potter is yet to be seen.

With regard to « legitimate business reasons, » the SCC states:

Other than in the context of a disciplinary suspension, an employer does not, as a matter of law, have an implied authority to suspend an employee without such reasons. Legitimate business reasons must always be shown, although the nature or the importance of those reasons will vary with the circumstances of the suspension.

Resignation

Of note, the SCC also comments that there are circumstances in which an employee could commence litigation against the employee’s employer for constructive dismissal and still not be deemed to have voluntarily resigned. These circumstances may occur in a situation where the employee has commenced the legal action but has continued to work under protest for the employer.

Conclusion

The SCC in Potter ties together a number of loose threads in Canadian case law and creates a new analytical framework for constructive dismissal claims generally, as well as, specifically, in the context of administrative suspensions in a non-unionized context.

The new framework provides clarity with regard to how an employer’s actions are to be analyzed. Nevertheless, each case will be determined on its unique circumstances, and Potter does not – and could not – provide a rigid and comprehensive template to determine when an employer’s actions constitute constructive dismissal.

However, constructive dismissal is a common issue that arises in employment law, and given that the stakes are so high when the issue arises, the SCC’s comments on the topic provide important guidance for both employers and employees.

If you are unsure of whether your organization has the express or implied authority to suspend an employee, we urge you to seek the assistance of one of our employment law or charity law specialists before proceeding with an administrative suspension.

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