In its decision in Potter v New Brunswick Legal Aid Services Commission, 2015 SCC 10, released earlier this year, the Supreme Court of Canada examined the test applicable for cases of constructive dismissal, as well as the defences available to such a claim. The Court’s decision provides new clarity in some areas, while leaving certain questions unanswered.

Background

The Appellant, Mr. Potter, was suspended with pay from his functions as Executive Director of the New Brunswick Legal Aid Services Commission without reasons. The Commission, at the time of the suspension, was seeking the government’s permission to terminate his employment with cause. Mr. Potter filed a suit for constructive dismissal against the Commission. He lost at both the trial and appellate levels, with the lower courts rejecting his claim that the indefinite suspension without pay amounted to constructive dismissal. The Supreme Court allowed the appeal and found in Mr. Potter’s favour, although the majority and minority disagreed on the basis of this result.

Majority’s Decision

The majority held that there are two tests by which a finding of constructive dismissal can be made. In both cases, the burden of proof will be on the employee to establish on an objective basis that the test has been met.

The first test is composed of two parts:

a) Identifying an expressed or implied contractual term that has been unilaterally breached. This is an objective test; if the authority to make the change exists or consent is given, then there will be no breach; and

b) Determining whether the breach was sufficiently serious to constitute constructive dismissal. Typically, issues of compensation, work assignments or place of work are raised. All are questions of degree.

The second test is: Looking at the conduct of the employer, in light of all of the circumstances, and determining whether a reasonable person would conclude that the employer no longer intended to be bound by the terms of the contract. The employee is not required to point to a specific breach of the contract, but rather whether the course of conduct cumulatively amounts to an actual breach.

The majority applied the first test for constructive dismissal to the facts of an administrative suspension. It held that if the employer is unable to establish that the suspension is justified, then the first branch of the first test is met. The question of whether the suspension is justified includes consideration of: the duration of the suspension, whether pay is continued, whether the decision is made in good faith, and whether there is a legitimate business reason. The Court found that in most cases where the suspension is unauthorized, such a suspension will also amount to a “substantial change” such that the second branch of the first test is also met. Any exceptions would likely be for suspensions that are particularly short in duration.

In Mr. Potter’s case, the majority found that there was an indefinite suspension with no valid business reason to suspend and that it had not been made in good faith. The suspension was therefore not justified and both branches of the first test had been met.

Minority’s Decision

The minority adopted a somewhat different analysis. It noted that the whole of wrongful dismissal law is grounded in broader contract law principles relating to repudiation and anticipatory breach. It stated that constructive dismissal can be shown either by showing a significant breach going to the root of the contract or by conduct which demonstrates the employer no longer intended to be bound by the contract.

The minority found that the trial judge erred by failing to recognize that the employer can repudiate the contract of employment other than by breaching an important term of the contract. Even if the suspension on its own is not sufficiently serious to constitute repudiation, in light of all of the circumstances, the employer’s conduct had manifested an intention not to be bound by the terms of the contract in the future. The surrounding circumstances, taken as a whole, clearly demonstrated intent by the employer to repudiate the contract.

New answers and remaining questions in constructive dismissal

The Supreme Court used this opportunity to reiterate some key concepts, set out some new directions and signal areas that remain in dispute:

  • Emphasis on the importance of work: The Court made several comments on the importance of an employee’s work: “The employer does not have an unfettered discretion to withhold work” (para 82). Work is considered to be “one of the most fundamental aspects in a person’s life, providing the individual with the means of financial support and, as importantly, a contributory role in society. A person’s employment is an essential component of his/her sense of identity, self-worth and emotional well-being” (para 83). “No employer is a liberty to withhold work from an employee either in bad faith or without justification” (para 85). As a result, a suspension, even if it is with pay, can constitute constructive dismissal.
  • Deduction of pension payments: The Court clarified that an employer is not entitled to deduct pension payments from constructive dismissal damages.
  • Disagreement re: evidence not known to employee: The majority and minority differed as to whether an employee can rely on evidence which exists, but is unknown to the employee at the time, to show that the employer intended to repudiate the contract. The majority found that a court must not consider evidence that was neither known to the employee nor reasonably foreseeable. The minority disagreed and found that the trial judge erred by excluding the employer letter seeking the dismissal for cause of Mr. Potter, even though he was unaware of the existence of the letter at the time: “to exclude this evidence from consideration, as I see it, would be to make the employee’s right to claim constructive dismissal depend on whether the employer succeeded in concealing his/her true state of mind. Happily, the authorities do not support that unattractive position” (para 173).
  • No answer on resignation issue: The Court declined to deal with the issue of whether an unsuccessful constructive dismissal suit by the employee automatically constitutes a resignation of employment. This question is thus left unanswered for future cases.

 

[This article is for informational purposes only and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]