What is Constructive Dismissal?

[00:00:00] Constructive Dismissal is one of those topics that comes up in HR, but it's a little bit like the boogeyman. You kind of talk about it, but you never really see it. Still, it is something we should know about. And I'm Andrea Adams. This is The HR Hub. Today, I'm back with Brady Farmer, who's going to talk about that. He's a partner at Matthew Dinsdale and Clark, and he advises employers on all kinds of things related to employment law, including constructive dismissal when it comes up. Hi,

[00:00:29] Brady. How are you? I'm good. Thanks for having me back. Well, thank you for coming on. So we're going to start with defining the concept because, you know, people do threaten constructive dismissal all the time. So what is it really? And equally, I guess, what is it not? Yeah, fair enough. It's a very good question to get us diving into it. From a high level, constructive dismissal is a unilateral,

[00:00:57] unilateral, and that's an important part, unilateral and fundamental change to an employee's terms and conditions of employment by an employer. And it's always going to be, and this is where people get annoyed with us lawyers saying that it's always going to be a fact-specific determination. There's no specific exact test to say that is constructive dismissal. You have to consider the employee's unique circumstances and their own terms and conditions of employment. But with that in mind,

[00:01:24] like some things that might be constructive dismissal would include a large reduction in salary or commissions, maybe a role change or demotion that also includes a new set of duties, or even maybe changing the location where an employee has to work, especially if we're talking maybe a change in cities or something of that nature. And it doesn't necessarily need to be a single change. And sometimes a single change on its own won't be constructive dismissal.

[00:01:53] So really, sometimes it's a number of changes that occur within a short timeframe, and it's their cumulative effect on the employee. So it's, you know, maybe change number one on its own wasn't enough, but now there's been four, five other changes that have occurred within a short timeframe, or maybe it's a bit longer, and that sets it over the edge for a constructive dismissal claim. And to your question, though, some things that aren't constructive dismissal. So again, there's no

[00:02:22] exact, you know, list I can give you, but I would say that constructive dismissal wouldn't usually be a reasonable and relatively small change to an employee's duties, especially if they already have that skill set. Maybe it's just building on some things that they've already done based on their experience, something like that. And in most cases, discipline and regular performance management

[00:02:47] aren't constructive dismissal, especially if they're done in good faith, and it's proportionate to whatever activity actually resulted in the discipline or performance management. But you might see someone take that very personally, and maybe throw out the constructive dismissal term when they're, you know, on the receiving end of some sort of discipline or performance management. When would discipline and performance management, like never actually occurred to me that that might

[00:03:17] be constructive dismissal? When would it be? No, it's a very good question. And so where sometimes it might come up is if an employee has done something that the employer considers very, very serious, maybe it's a violation of a safety or harassment policy of some sort, and they go all the way to putting the employee on a unpaid suspension. If it's only one

[00:03:44] or two days, it's going to be maybe a difficult claim for constructive dismissal, but maybe you're in the territory of an employee going to legal counsel and trying to allege that. If it's a long unpaid suspension, or even if it's a long paid suspension, maybe you get into that territory because at the end of the day, the idea is that the change that's occurring in that circumstance would be that you're no longer paying the employee or providing them with work to do.

[00:04:12] And on a similar note, maybe if it's performance management of some sort, and it's a performance improvement plan, but you're changing how they perform their duties and how they do their work. Again, in most circumstances, in my opinion, that's not going to be constructive dismissal, especially again, good faith, it's proportionate. But an employee might take that very personally and say, hey, you're making these changes to my employment. I'm going to allege constructive dismissal in these circumstances.

[00:04:41] So what are the most common things that employers do that trigger valid constructive dismissal claim? Yeah, I would say in my personal experience, it is, you know, going back to those significant change to an employee's pay structure, whether it's their salary or commission, while also maybe making some changes to an employee's duties, especially to motion. I think because those things, I keep going back to it, but those things are taken personally.

[00:05:09] And someone feels personally wronged in some way, especially if it's an emotion or, you know, a reduction in pay. There's a stronger incentive for someone at that point to either just resign an alleged constructive dismissal or to seek legal counsel, because at that point, they feel like maybe there's a little less to lose. They've been demoted. It's something of kind of pride. It's, you know, they feel very wronged. And they're more incentivized, as I said, I think at that point,

[00:05:38] to seek legal counsel or alleged constructive dismissal. But there are times, like, let's just say you're the organization's restructuring. Oh my God, that happens all the time now, more than ever. Or you want to revise the bonus, you know, structure, your bonus program. How can employers go about doing that without creating a valid constructive dismissal claim? Again, the annoyance with lawyers, it's always going to depend on the circumstances.

[00:06:06] But there's ways you can do it depending on what is or isn't changing. And it's also always important to keep in mind what were the current terms of the contract. So you referenced a bonus there. Well, if there's, say, language in the current bonus plan and or the employee's employment contract that says, you know, you're entitled to this bonus. This is roughly how it's set out. But the employer reserves the right to make amendments to it, you know, at its discretion.

[00:06:37] That doesn't necessarily mean the employer will be successful in defending any constructive dismissal claim that comes across its plate. But it provides maybe a bit more flexibility for the employer to make that change in accordance with the current language of the bonus plan or the employment agreement language. But also to your question, I think at the end of the day,

[00:07:01] the more notice that can be provided is always useful as well. And I'll get there's to that point there, there, especially if it's maybe really, really fundamental change to one employee and, or I guess it could be multiple, but you can potentially minimize that constructive dismissal risk by providing an employee with reasonable notice of the change. And the reasonable notice in this

[00:07:25] case should equal roughly what the employee would get for common law reasonable notice, which, and again, is potentially going to be, if any of your listeners know, months of notice. And I know you have already done a discussion on that, that I'd recommend anyone go watch. But that common law notice could be, depending on length of service and age, months, months and months of notice, depending on the circumstances. And so if an employer actually gives the employee reasonable

[00:07:54] notice of a change, they can potentially avoid a constructive dismissal claim. It's a very specific scenario. Yeah. I want to ask about that though, because when you're restructuring, for example, you can't announce it and then wait for two years to do it. You've just got to get on with it. So how do you provide reasonable notice? Or is it like you sort of red circle them for a couple of

[00:08:18] years and then you move them to the new rate or you? So with the, with that scenario, you can't, if you simply cannot provide the notice, then at some point there's going to be a certain element of risk and liability in making the change in a short amount of time. But if you wanted to at least try to maybe alleviate the concern that maybe someone's going to allege constructive dismissal,

[00:08:43] you could offer those employees an amendment letter or perhaps a new employment agreement entirely, setting out whatever the restructuring change is, how it's going to impact their duties. And you could offer them some sort of consideration to agree to that change. And that could be something as simple as a signing bonus. If the employee agrees to it explicitly and they are provided with some sort of consideration, like a signing bonus to agree to the change, well,

[00:09:12] then it's no longer a unilateral change. And therefore it gets outside that definition and understanding of constructive dismissal because the employees actually explicitly agreed to it. So that's one way to do it. And then going back to that scenario of giving enough notice, if you have the chance to do that, that's a very unique scenario. I would always strongly recommend getting legal counsel to discuss just because you want to try and determine what amount would be

[00:09:38] reasonable notice in that case. But what you also want to do in that scenario is you'd say, at the end of this, say, maybe it's 12 months. These are the changes that are going to take place. Here's your new contract. And if you accept it, you continue working under those new terms. But if by the end of that period, you haven't accepted it, your employment will end. But you have to very clearly lay that out. And it's, it maybe isn't, you know, practically speaking,

[00:10:07] always going to be the best option, but it's one that is there for an employer if they want to explore. It's just, it's a difficult one because at that point, the employee knows what changes are coming and they know that really at the end of the day, they either accept it or don't. And the employment relationship might end. So it's kind of, it's a way of giving almost working notice of termination, but with a new offer to continue employment under new terms at the end of that

[00:10:35] working notice. So it's a really unique setup. And that's why I would say, you know, legal counsel is probably a good idea in that case, just because it can be a little complicated. Yeah. Is there ever a case where a unilateral change is legally defensible? Like let's say they lose a client, counts for 50% of their business. Could they drastically alter someone's duties and compensation unilaterally? Yeah, it won't necessarily be some sort of

[00:11:06] ironclad defense to a claim of constructive dismissal. However, I would always recommend if there's a legitimate reason for why the change is being made, like your example there, where maybe a large client is lost and especially the unfortunate circumstance where maybe the employee is the reason that that large client is lost. No, it's going to be an ugly set of circumstances, but if something needs to be done, you know, I would still recommend maybe that's being communicated

[00:11:33] depending on the circumstances to that employee of why it's being done. But that being said, at the end of the day, if it's still a unilateral and fundamental change to their terms and conditions of employment, that reason won't necessarily act as a defense. So it's a good question, but you'd still be in that potential risk for liability of a constructive dismissal claim. If an employee wants to make a successful claim?

[00:11:57] I mean, when that change is made to an employee's terms and conditions, it's important for the employee to keep in mind that really at law, they kind of have two broad options. The one is to, and there's always going to be unique circumstances, but they have two broad options of law. They can either simply just accept the change and continue working for the employer, or reject the changes and resign. But what the, at law, they're usually given some sort of

[00:12:23] reasonable amount of time to at least consider the change and decide whether or not they will, in fact, resign an alleged constructive dismissal. Because at law, it's kind of accepted that the employee should at least have some sort of chance to say, okay, I don't like this change, but I'll at least consider it. I'll give it a try, see what it means practically for my working conditions. And ultimately, if the employee doesn't agree with it, doesn't think, you know,

[00:12:49] the relationship can continue under these new conditions, at that point, the employee can choose to resign, alleged constructive dismissal, maybe obtain legal counsel. But the employee should keep in mind that if they work too long under those new conditions while they're thinking about it, they can be considered to have condoned the changes. And that's a big issue for the employee, because essentially, a defense to a constructive dismissal claim could be that the employee has

[00:13:18] condoned those changes. Like if they don't bring the constructive dismissal claim for maybe a year or more, say, after the change has been implemented, the employer might say, well, wait a second, this happened a long time ago, you've been working under those conditions for, you know, two years, whatever it might be, you can't now allege constructive dismissal. So it is important for the employee to keep in mind that there's no exact timeframe. But, you know, they should be keeping

[00:13:44] in mind that they should make that decision within a reasonable timeframe. From a practical HR standpoint, what's one thing you wish employers knew before making a significant change to an employee's role? I think that even if I suppose there's language in a contract talking about being able to make some sort of change, that it doesn't necessarily give the right to make, or it doesn't necessarily

[00:14:12] act as that complete defense, as I was saying previously, to a constructive dismissal claim. And that's something we run into every now and then where maybe a client employer might say, well, you know, we made this change and the contract said we could do X. Ultimately, that's helpful. As I said, it's always good to go back to the contract, see what it says. But in most circumstances, contract language doesn't necessarily permit an employer to make every single change they might

[00:14:42] want to make, regardless of the size, how impactful it might be. So that's where I think, you know, something to keep in mind as an employer that look at that contract language, but always remember that even if there's something allowing a small, medium, even a large change at law, that concept of constructive dismissal might still apply. Where can people find you and get more advice? Yeah, absolutely. You can find me on my firm's website. So that's Matthews, Dinsdale & Clark, LLP.

[00:15:12] And we have offices all across Canada. I'm located in our Calgary office, and you can certainly shoot us an email or give us a call at any time. Well, thanks, Brady. That was great. I'm thinking about the part where you said an employee can either choose or they have to, well, choose to accept it or choose to resign. And there might be

[00:15:33] a period where they can have an experience of the new job and salary, but they can't do that for a long time and then allege constructive dismissal. That part's interesting. So Brady and I also talked about an episode we've already done, which was on severance in Canada. A link to that's right here or in the list of episodes. Thanks for watching out there. See you next time.