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Employer Obligations & Constructive Dismissal

“Change is the only constant”, it is said and this hold true for all aspects of life – including the workplace. Companies, big and small change and evolve. Employees do too but roles and responsibilities in a job function and the formalization of the same, seem to sometimes become an afterthought to these evolutionary changes. Eventually, when change forces organizations to take the step to develop and communicate a change strategy and thus express a desire to reassign talent accordingly, there exist hurdles that need to be cleared. This is seen more in smaller & medium sized businesses, and is borne out by the fact that I frequently field questions from small to medium business clients on company changes resulting in a need to change employee roles, reassignments due to poor performance, or outright termination scenarios that are presented as a temporary lay-off, and “How do we go about this?”

Unsurprisingly, reassignments due to poor performance are never a good idea. It does not fix the problem, it’s just being relocated. It would probably be better for the employee and the company, if they were coached, issues addressed, the employee placed on a Performance Improvement Plan (PIP) if and as necessary and they were offered an opportunity to succeed.

What is Constructive Dismissal?
Constructive dismissal arises from the failure of the employer to live up to the essential obligations of the employment relationship, regardless of whether the employee signed a written employment contract. A constructive dismissal claim arises when an employer unilaterally changes a fundamental term of the employment agreement and, while the employer has not directly terminated the employee, the employee feels as though they are being pushed out and quitting is their only option.

Forms of Constructive Dismissal
Single unilateral change to an essential term of employment – The change must be substantial, unilateral and strike at the essential terms of the employment agreement. Mostly involve a change to an employee’s compensation, place of work and/or demotion which may involve such changes as the reporting relationship, job title, substantive duties, lower prestige and/or status.
A series of acts that indicates the employer no longer intends to be bound by the empoloyment contract – Constructive dismissal can also arise when a series of acts, taken together, show that the employer no longer intends to be bound by the employment contract. The cumulative effect of these changes can result in a fundamental breach of the employment agreement. An employer’s breach of the employment contract releases the employee from their obligation to perform under the contract, and thus allows them to treat themselves as dismissed without notice. Hence, a constructive dismissal always becomes a wrongful dismissal.

Situations Leading to Constructive Dismissal
Typically, the first way to claim constructive dismissal involves an employer making substantial changes to the employment contract (relationship), such as:

  • Demotion – altering the employee’s reporting structure, job description or working conditions.
  • Lowering an employee’s compensation (changing hours of work, imposing a suspension or leave of absence, or relocating the employee’s workplace.)
  • Employer actions resulting in isolation of employee, exclusion of employee from normal job functions or meetings, or significant reduced changes in adherence to regular work interactions leading to humiliation or embarrassment, can potentially result in a constructive dismissal claim.
  • Failure on the part of an employer to provide minimum prescribed employment standards (e.g. overtime pay, vacation pay, etc.), can also result in a constructive dismissal.

For an employee to have a successful case for constructive dismissal, the employer’s breach must be fundamental. “Fundamental” depends on the circumstances, and not all changes to the employment relationship give rise to a constructive dismissal. For example, the following:

  • Administrative, i.e. non-disciplinary, suspensions might not amount to a constructive dismissal if imposed in good faith and justified by legitimate business reasons (i.e. lack of work).
  • A  small reduction in salary, in tough times, and administered rationally, might not be a constructive dismissal.

When is a Unilateral Change Deemed a Constructive Dismissal?
Courts have determined that a unilateral change to an employee’s position by the employer, doesn’t necessarily constitute constructive dismissal, but an assessment should be done of whether that change is so serious, or substantial so as to demonstrate “an intention not to be bound by the employment contract.”

Mitigation: Can an Employee Quit & Sue?
An employee who claims that they have been constructively dismissed is required to take reasonable steps to mitigate their losses by looking for new employment. The duty to mitigate can require an employee to consider a reasonable offer of re-employment. By offering re-employment on the revised terms employers can protect themselves in case of a legal challenge from the employee, by preparing a mitigation defense. Courts have said that even if an employee had been constructively dismissed, they have a duty to mitigate their damages by continuing in the new position (commonly known as “Evans mitigation,” based on the Supreme Court of Canada decision in Evans v. Teamsters Local Union 31). However, an employee should not be obligated to mitigate by working in “an atmosphere of hostility, embarrassment or humiliation.”

Key Take-Aways
Employers must be mindful of the potential for a constructive dismissal claim, and that they can turn an employee’s obligation to mitigate to their own advantage.
• Ensure your employment agreement allows for flexibility to unilaterally change certain terms
• Full and honest communication ensures that employees feel engaged in their role and workplace, provide honest feedback and coaching, initiate a performance management plan if necessary, follow up and follow through. It’s not advisable to ignore the situation or the employee and especially do not silo the employee (knowingly or un-knowingly), reduce their functions or try to change their role and hope they’ll leave by themselves.
• Take care especially when placing an employee into a temporary position – what’s happening, for how long, what happens at the end of assignment, return to their former position etc. could prevent constructive dismissal claims.
• Create a new employment agreement based on revised terms of new roles. Reflect fundamental changes to the employment relationship ensuring that you have the employee’s consent to the revised terms. In order to constitute a “new” employment agreement, an employer must provide new consideration in exchange for the changes. Consideration includes job security, new benefits, a bonus, a raise, or a promotion.
• If you need to make a fundamental change, give the employee reasonable notice of the change. This is the same notice period employers would provide if terminating the employee without cause. Reasonable notice is determined by the termination provision in the employment agreement.
• If an employee’s job is eliminated, finding the employee a comparable position is one way for an employer to avoid liability. If a role is not available, the employer could offer a different position on a temporary basis (without pay reduction) until a comparable one is found, else terminate the employee with all relevant entitlements.
• Positive announcements about re-assignments, and support during the re-assignment, decrease the likelihood of subjective feelings of humiliation and embarrassment on the employee’s part and decreases constructive dismissal claims.

If you’re a Beneplan client, please call or email us to get help with these or any other organizational HR issue that you may require support with. Also, don’t forget the HR Toolkit section of your client login, for HR document resources that you can avail of.

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