Understanding Constructive Dismissal: Legal Framework and Employer Considerations

Definition

Constructive dismissal can be described as situations where the employer has indirectly fired the employee by unilaterally changing an essential condition of the terms of employment, essentially forcing the employee to quit. These situations can be disguised as demotion, suspensions and even changes to the employee’s renumeration.

Our firm was recently asked the following question:

Q: does changing the way a benefit, such as a commission or bonus, is paid (without removing or altering the benefit) qualify as a substantial change to the employment contract? 

A: Absolutely, changing the way a renumeration is paid is deemed to be changing the employment contract in a substantial way in which can result in the employee claiming constructive dismissal.

Let us start with a little introduction

Article 124 of The Act Respecting Labour Standards is the means an ex-employee would use to file a complaint with Commission des normes, de l’équité, de la santé et de la sécurité du travail (CNESST) In order for the ex-employee to file a complaint through this article, they must have two years of interrupted service in the same enterprise and believe they have not been dismissed for good and sufficient cause. This article is also used for an ex-employee who believes to have been constructively dismissed.

Case Law

The Supreme Court decision Farber v. Royal Trust Co., [1997] 1 S.C.R. 846 is the decision that defines constructive dismissal, Justice Gonthier provides an analysis of the framework including the cumulative criteria of the notion of constructive dismissal:

1. a unilateral decision made by the employer
2. a substantial modification of the essential conditions of the employment contract
3. the refusal of the modifications made by the employee and
4. the departure of the employee

Additionally, Farber provides the objective test to determine whether an employee has been constructively dismissed: whether a reasonable person in the same situation as the employee would believe that the essential terms of the employment contract have been substantially changed. Furthermore, the court in Farber notes that in several decisions, both in Quebec and other provinces, it has been held that a demotion constitutes a substantial change to the essential terms of an employment contract. Moreover, in some cases, a unilateral change to the method of calculating an employee’s remuneration has been found to lead to the conclusion that the employee has been constructively dismissed.

Papachristopoulos v. Medisca Pharmaceutique Inc. et al 2019 QCCS 24 explains that Doctrine and case law, whether in France, Quebec, or Canadian common law, if an employer substantially modifies remuneration whether through salary or commission this touches an essential element of the contract. Another example demonstrated in the decision Broadman c. Compagnie de publications Michael inc., 2024 QCTAT 38 is that a reasonable person placed in the same situation of an employer ceasing to pay 100% of advances on commissions for three pay cycles can be considered substantially changing the employment contract. 

Inversely, the Court of Appeal decision in St-Hilaire v. Nexxlink inc. 2012 QCCA 1513 states that when the terms of an employment contract, such as provisions regarding annual bonuses, expressly allow for changes, such adjustments cannot be considered constructive dismissal. This is because the employee has explicitly agreed to these terms, and no unilateral decision was made by the employer. In such cases, the employer is permitted to make changes to the employee's situation as allowed by the contract, particularly under the employer's management prerogative. These adjustments are not modifications to the employment contract but rather its application.

Conclusion

Most employers are unaware that even the simplest change to an employee’s employment contract can lead to a constructive dismissal dispute. Therefore, employers must carefully consider whether any proposed alteration to the contract would result in a substantial change to an essential element of the employment agreement.

Since Farber and subsequent case law, Jean-Marc Fortin’s doctrine Tendances en matière de congédiement déguisé provides us with elements that must be analyzed in the determination of constructive dismissal incidents:

1. The presence of an employment contract;
2. The terms of the employment contract and the employer's management rights;
3. The presence of a unilateral change by the employer;
4. The presence of a substantial modification to the employee's working conditions;
5. The presence of a modification to the essential conditions of the employee's employment contract;
6. The reasonable person test;
7. The employee's tacit or express acceptance of the changes;
8. The presence of a serious reason justifying the contested modification;
9. Prior notice must have been given;
10. Malicious intent or bad faith on the part of the employer.

In light of the relevant case law and legal doctrine, employers must be extremely vigilant when drafting their employment contracts to prevent disputes that may arise from any subsequent alterations. Careful attention should be given to ensuring that the terms of the contract are clear, comprehensive, and include provisions that anticipate potential changes in employment. By doing so, employers can minimize the risk of constructive dismissal claims and other legal challenges, safeguarding both their interests and those of their employees.