When an employer – employee relationship comes to an end, it is usually because the employer has terminated the employee or because the employee has resigned. However, in some cases, it is not explicitly clear whether there has been a termination or a resignation.
Constructive dismissal is when an employee is not formally dismissed, but the employer breaches a fundamental term of the employment contract or the employer’s conduct evidences an intention to no longer be bound by the employment contract, and accordingly the employee claims that he or she has been terminated. Often, the employer will argue that it was unreasonable for the employee to conclude that the employment contract had been substantially changed or brought to an end, and as a result the employee resigned. In Potter v New Brunswick Legal Aid Services Commission, 2015 SCC 10, the Supreme Court of Canada reviewed this situation.
Mr. Potter was the executive director of New Brunswick’s Legal Aid Services Commission (the “Commission”). The Commission placed Mr. Potter on an indefinite suspension with full pay and benefits. The Commission did not give Mr. Potter a reason why he was suspended.
Subsequently, it was discovered that the Commission’s board of directors had decided to request that the Provincial Minister of Justice terminate Mr. Potter’s employment for cause.
Before the Provincial Minister of Justice had acted on the Commission’s request, Mr. Potter commenced an action for constructive dismissal. The Commission took the position that by commencing the action, Mr. Potter had resigned from his employment.
The New Brunswick Superior Court held that Mr. Potter was not constructively dismissed, despite the fact that the suspension was indefinite in length. The New Brunswick Court of Appeal upheld the Superior Court’s decision.
The Supreme Court of Canada overturned the Court of Appeal decision and held that the Commission constructively dismissed Mr. Potter.
The Supreme Court found that the suspension was not authorized by any express term in the employment contract. Furthermore, the Supreme Court held that legitimate business reasons are a requirement for a finding that an administrative suspension based on an implied authority to suspend is not wrongful. This requirement was not met as the Commission did not show that the suspension was reasonable and justified. In addition, the Supreme Court found that it was reasonable for Mr. Potter to perceive the unauthorized unilateral suspension as a substantial change to the contract.
The test for constructive dismissal is very fact specific and is described in great detail in the Supreme Court’s decision. It is important for employees and employers to get the advice of a lawyer if faced with a situation that may result in constructive dismissal.