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Constructive dismissal still under construction.

"constructive dismissal can [occur when]... a series of acts that,
taken together, show that the employer intended to no longer be
bound by the contract."
--Potter v. New Brunswick Legal Aid Services Commission

[2015] 1 SCR 500


Constructive dismissal was revisited by the Supreme Court of Canada last year in the case of Potter v. New Brunswick Legal Aid Services Commission []. A unanimous Court expanded the law about constructive dismissal for employees.

Until last year, the main authority was the 1997 case of Farber v. Royal Trust Co. []. In that case, Royal Trust Co., an affiliate of the Royal Bank of Canada, underwent a major reorganization in June 1984, including the elimination of its regional manager positions. As a result, David Farber, the regional manager for Western Quebec, who supervised 400 real estate agents and administered 21 offices, was set to lose his job.

Royal Trust offered Farber the manager's position at the Dollard branch, a position he had held eight years earlier, but did not guarantee him a base salary. The branch was one of the least profitable in the province, which meant that Farber's income, in his opinion, would decline substantially to about half if he accepted the offer. Farber sued employer Royal Trust for damages on the ground of constructive dismissal.

The case reached the Supreme Court in 1997 where it was unanimously stated that:

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 constructively dismissed.

To determine whether the "unilateral changes imposed by the employer substantially altered the essential terms of the employee's contract of employment," the Court articulated the test of whether a reasonable person, in the same situation as Farber, would have felt that the essential terms of the employment contract were being substantially changed. It was an objective assessment, not merely the opinion of Farber.

The Court concluded Royal Trust constructively dismissed Farber, because it:
... substantially altered the essential terms of the employment
contract. At the time the offer was made, any reasonable person
in the same situation as the appellant would have come to that
conclusion. The manager's position at the Dollard branch, which
was experiencing problems, was a significant demotion for the
appellant. His responsibilities were being drastically cut,
resulting in a considerable loss of status and prestige.

Farber was awarded $150,000 as one year's remuneration in lieu of notice.

Potter v. New Brunswick Legal Aid

David M. Potter was appointed as the Executive Director of the New Brunswick Legal Aid Services Commission for a seven-year term. The relationship between Potter and the Commission quickly fell apart during the first three years. The Commission considered buying out the balance of Potter's contract. Potter took a sick leave. Just before his return, and unknown to Potter, the Commission recommended to the Minister of Justice that Potter's employment be terminated for cause. The Commission suspended Potter indefinitely with pay before he returned from his sick leave. So, Potter voluntarily resigned and alleged that the actions that prompted his resignation constituted constructive dismissal. The case was appealed to the Supreme Court which unanimously held that:

[Potter] was constructively dismissed. In light of the indefinite duration of his suspension, of the fact that the Commission failed to act in good faith insofar as it withheld reasons from him, and of the Commission's concealed intention to have him terminated, the suspension was not authorized by his employment contract.

The Commission did not have the express or implied authority to suspend Potter indefinitely with pay. His suspension was a substantial unilateral change to his contract and hence a constructive dismissal.

Up to this point, whether an employee had been constructively dismissed was determined by two criteria:

(1.) the court must first identify an express or implied contract term that has been breached; and

(2.) whether that breach was sufficiently serious to constitute constructive dismissal.

However, in Potter the Supreme Court introduced a new factor: "an employer's conduct will also constitute constructive dismissal if it more generally shows that the employer intended not to be bound by the contract." And "it is now sufficient to show that the 'course of conduct' pursued by the employer demonstrates an intention to no longer be bound by the employment contract."

The Court said that:
Given the nature of the Executive Director's position and the detail
in which his statutory obligations were defined in the contract,
the Commission had an obligation to provide [Potter] with
work... Because the Commission has failed to establish that
the suspension was reasonable or justified ... the suspension
constituted a unilateral act.


In 2015, the Supreme Court of Canada added another test for constructive dismissal. If the employer, in any course of action, demonstrates an intention to no longer be bound by the employment contract, it may be liable to the employee under the constructive dismissal doctrine

By Peter Bowal and Patrick Tapuska
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Author:Bowal, Peter; Tapuska, Patrick
Geographic Code:1CANA
Date:Jun 1, 2016
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