Everything but those Two Little Words: The Truth Behind Constructive Dismissal

On his hit television show The Apprentice, business mogul Donald Trump turned the words “you’re fired” into a novelty catch phrase.  In reality though, these are likely the two most difficult words any employee could hear.  Work is one of the most important relationships in people’s lives, and the end of that relationship can be quite difficult.

Yet the working relationship does not always end with such clarity.  In many cases, significant changes in an employee’s working situation can signify the end of the employment relationship without those two little words ever being uttered.  These cases are known as ‘constructive dismissal.’

What is constructive dismissal?

The Supreme Court initially defined constructive dismissal as a situation “where an employer decides unilaterally to make substantial changes to the essential terms of an employee’s contract of employment and the employee does not agree to the changes and leaves his or her job, the employee has not resigned, but has been dismissed.”  There are key elements contained within this definition – the changes must come from the employer and must be substantial changes to the essential terms of the employment agreement. 

This can take shape in different ways in employment relationship.  A significant reduction in salary, a reduction in title or status (including a demotion from a managerial or supervisory role), a change in employee benefits such as compensation, or a significant change in the geographic location of work without reasonable notice.

Not every change in the employment relationship will qualify as a constructive dismissal, of course.  Most employment agreements are structured carefully to provide some flexibility in employment, and ensure employers can make operational changes for legitimate business reasons.  However, there are just as many scenarios where changes that may seem small to an employer can loom large for an employee, and can definitely be interpreted as a constructive dismissal.

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How the Court sees it

The case of Jodoin v Nissan Canada Inc. is a perfect example of how a job shift the employer viewed as a lateral move was successfully argued as constructive dismissal by the employee.

In Jodoin, a senior manager with 10 years company experience (including several promotions), a high budget, and two employees on his team was moved to a new senior manager position that did not previously exist.  While still technically at the same level, the new position had no job description, no employees reporting to him, no long-term goals, no budget, and no private office.  While he tried repeatedly to contact the company executives, he was unsuccessful until he told the President he considered himself constructively dismissed.  Only then did he receive a reply stating that the President was unsatisfied with his prior performance, despite never having received a negative performance review.

The employer, Nissan Canada, took the position that viewed objectively this was simply a lateral move, and not a constructive dismissal.  The Company pointed to the fact that Jodoin’s salary, benefits, and senior manager title remained unchanged.  It said that in the eyes of a reasonable person, this would have been, and should have been, seen as a lateral move.

The Court agreed with Jodoin.  In breaking down the elements of the move, the Court found the only element unchanged for Jodoin was his salary.  It agreed the new position was hollow, with no job description, no private office, and poor communication from Nissan constituted a case of constructive dismissal.  The Court awarded Jodoin salary and benefits for the 9 and a half months he was out of work – a total of just over $100,000.

What you can do

The Jodoin case is a good lesson for employers that there is no ‘magic formula’ behind constructive dismissal.  Jodoin’s employer likely expected that they could move him out of their employment relationship without an actual termination, by shifting him into a role that seemed similar but would make him unhappy enough to resign.

This, of course, wound up costing the employer severely.  The Court ruled that even though Jodoin’s role may have seemed similar enough on the surface, it was not at all the same underneath. Courts will examine the nature and character of the employment relationship when analyzing a claim of constructive dismissal, and will not hesitate to find one if “the unilateral changes imposed by the employer substantially altered the essential terms of the employee’s contract of employment.”

This case should serve as fair warning to employers.  Employers can make changes to the employment relationship, but there must be consideration offered in exchange for these changes.  Otherwise, if employers move to singlehandedly make significant changes to an employee’s terms of employment, they may be found to have constructively dismissed the employee.

The key to solving this challenge is good advice, on both sides of the relationship. For employers, it is prudent to seek advice before implementing changes to ensure they will benefit both your employees and your workplace, and not one at the expense of the other.  An employment lawyer can review your desired changes and provide guidance to ensure smooth transitions that will keep your employees loyal and productive throughout the process, and help minimize any potential risk of constructive dismissal claims.

For employees, good advice can also be the key to maintaining a healthy workplace relationship amid changes.  If you have received revised terms of employment or a revised employment agreement, speak with an expert before signing off on it.  An employment lawyer can help you review the document and ensure that the changes your employer is asking for are legal and that you’re being treated fairly during the process.

If you would like to discuss changes or potential changes with your employment relationships, contact us today to learn how we can help.

Disclaimer: this post is intended for educational and non-commercial purposes only and is not intended to be a source of legal advice to any person in respect of any particular legal issue; it does not create a solicitor-client relationship with any readers. If you have a legal issue or possible legal issue, please contact us.
Blog post by Shaun Bernstein
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