What is constructive dismissal?

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You’ve likely heard the term constructive dismissal, but what does it mean? Constructive dismissal occurs when an employer alters one or more of the fundamental employment terms and conditions, such as hours or rate of pay. While the employer may not have been acting explicitly to terminate the employee, the change was done in such a way that the employee felt they had to leave, or their contract had essentially been terminated and a new contract created. 

How does this happen? 

Often, constructive dismissal occurs when the employer makes substantial changes to the employee’s contract. Examples include:

• Changing an employee's reporting structure.
• Lowering an employee's compensation or giving the employee a demotion.
• Changing the employee’s job description.
• Changing the employee’s working conditions or relocating the employee’s workplace.
• Changing the hours of work for an employee.
• Imposing a suspension or leave of absence.

Another form of constructive dismissal can be a toxic workplace. A toxic workplace is described as a work environment where employees are stressed, or people are rewarded for destructive, cruel, and sometimes unethical actions and behaviour. This can be in addition to a lack of communication and often a blame culture.  

How do you avoid constructive dismissal? 

As an employer, even if there isn’t a written contract you can still be held accountable for constructive dismissal. To avoid this, implement a strategy for making changes to the terms of employment.

• Get everything in writing. A written employment contract is critical.
• Give Notice. If you plan to make changes, give notice and the opportunity to ask questions. Employees have the right to dispute changes.
• Be transparent. Being straight forward and honest is the best approach. Employees are much more receptive.
• Take employee complaints seriously. Complaints about a toxic work environment, working conditions, harassment, etc. must be taken seriously!
• When possible, offer additional compensation. If you do need to change contracts, offering new compensation will help greatly. Especially when the contract change is negative, having a monetary increase often offsets these concerns. However, compensation does not need to be financial, it could be extra vacation time, the opportunity to work from home/flexible hours, etc. 

It is strongly recommended to seek legal advice before changing any of the fundamental terms of an employment contract. 

What may be the consequences of a constructive dismissal case?

In many cases employees need to take reasonable steps with their employer before resigning. However, courts have acknowledged that many employees are not in a financial position to resign, and so a constructive dismissal claim may stand, even if the employee continued to work. If the employee resigns, they are expected to make the constructive dismissal claim within a reasonable timeframe. The timelines may differ for this depending on the jurisdiction where your business is located. 

In the court of law, constructive dismissal cases are most often seen as equivalent to wrongful dismissal. These cases can end in the employer having to re-instate the employee and/or pay compensation for lost wages (termination pay or severance). In addition, employees may be awarded compensation for additional damages, typically for the mental distress the employee dealt with during the time in which the employee was dismissed. 

If you are a CFIB member and want to change an employee’s terms of employment, please contact a Business Advisor today at 1-833-568-2342 or cfib@cfib.ca for advice and guidance. This is not a step to take lightly. 

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