Canadian Labor Law Law and Human Resources: Canadian Constructive Dismissal and Human Resource Approach in Companies

This work examines constructive dismissal and human resource approach in Canadian companies. The relationship that exists between the employer and employee is reported as a "type of contract." Dismissal of non-unionized employees is stated to be subject to "labor law" as well as their collective agreements in contrast to the rules that exist in Ontario and Canadian employment law which may be a breach of the condition of the employment contract. (Ball, 2008, paraphrased)

Definition of Constructive Dismissal

Constructive dismissal is a term used to describe "…employment situations in which the employee has not been directly fired by the employer but instead the employer has failed to comply with the employment contract in some primary aspect resulting in unilateral change to the terms of employment. This includes a statement on the part of the employer that they intend to do the same thereby effectively forcing the employee to quit their job. Constructive dismissal is also known as 'disguised dismissal' or 'quitting with cause'." (Human Resources and Skill Development, Canada, 2010; Applasamy, nd and Howcroft, et al., 2010)

Constructive dismissal occurs in situations "where the employee is offered the alternative of leaving or submitting to unilateral and substantial alteration of a fundamental term of condition of his/her employment." (Human Resources and Skill Development, Canada, 2010) The determination of whether constructive dismissal has occurred is reported to be "based on an objective view of the employer's conduct and not merely on the employee's perception of the situation." (Human Resources and Skill Development, Canada, 2010) It is reported to be the failure of the employer "to meet its contractual obligations that distinguishes a constructive dismissal from an ordinary resignation." (Human Resources and Skill Development, Canada, 2010) The action of the employer must be unilateral meaning that the action of the employer was taken without the employee's consent. If there is a mutual agreement then there is not a unilateral change and the variation is not constructive dismissal but instead is "an agreed change to the contract of employment." (Human Resources and Skill Development, Canada, 2010 and Fantini, 2008) In addition, when the employee "clearly indicate non-acceptance of the new conditions of employment to the employer, there has been a constructive dismissal only if the employee leaves within a reasonable (usually short) period of time." (Human Resources and Skill Development, Canada, 2010) If the employee fails to resign then he or she has implied an acceptance of the new employment conditions.

II. Statute of Limitations

The statute of limitations begins running on the day that the constructive dismissal takes place. The employee has 90 days as required by s240(2) to file a complaint unless, however, "…the complainant qualifies for an extension of the time to file under s.240(3)." (Human Resources and Skill Development, Canada, 2010 )

III. Types of Constructive Dismissal

The most common types of constructive dismissal occur when the employee "leaves as a result of material changes in powers or duties." (Human Resources and Skill Development, Canada, 2010) The second common type of constructive dismissal occurs when the employee quitting is "…due to threats of dismissal or demotion." (Human Resources and Skill Development, Canada, 2010) The third most common type of constructive dismissal is when the employee quitting their job is due to "…a major reduction in an employee's hours of work or change in the location of employment" (Human Resources and Skill Development, Canada, 2010 and Molnar, nd) however, these circumstances are often not sufficient to prove constructive dismissal.

IV. Leading Case on Constructive Dismissal

The leading case in Canadian courts on constructive dismissal is found in the Supreme Court case Farber v. Royal Trust Co.[footnoteRef:1], a case in which the Court stated that "the principles...

Mr. Farber was employed by Western Quebec for Royal Trust, a real estate company supervising more than 400 real estate agents and administering 21 offices. Mr. Farber's income including commissions is stated at $150,000 in 1983, which included a guaranteed base salary of $48,000. It was the decision of Royal Trust to restructure its company, which included the elimination of the regional manager positions. Mr. Farber was offered a job as the branch manager of the Dollard site, which was a position he filled eight years prior to the restructuring. There was no guaranteed base salary and the estimations of Mr. Farber stated that his income would be reduced by 50%. While Mr. Farber was offered $40,000 for reorientation in addition to a commission at a higher than usual rate, the Dollard site was not a profitable one and Mr. Farber made the attempt to negotiate to be moved to a site that was more profitable. Royal Trust denied Mr. Farber's request and Mr. Farber resigned and filed a constructive dismissal complaint. It was the adjudication of the Supreme Court that Mr. Farber had been constructively dismissed. The court set out the test for a constructive dismissal under the Civil Code as follows: [1: [1997] 1 S.C.R. 846 [hereinafter Royal Trust]]
"To reach the conclusion that an employee has been constructively dismissed, the court must therefore determine whether the unilateral changes imposed by the employer substantially altered the essential terms of the contract of employment. For this purpose, the judge must ask whether, at the time the offer was made, a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed." (Payne and Rootham, nd and McClelland, 2009)

It is reported that under the common law that the test for constructive dismissal is "virtually identical" and that is has been determined in a few Canadian common law decisions as follows:

"where an employer unilaterally makes a fundamental or substantial change to an employee's contract of employment -- a change that violates the contract's terms -- the employer is committing a fundamental breach of the contract that results in its termination and entitles the employee to consider himself or herself constructively dismissed." (Payne and Rootham, nd)

The Supreme Court is also reported to have provided some examples of precisely what constitutes constructive dismissal as follows:

"In a number of decisions in both Quebec and the common law provinces, it has been held that a demotion, which generally means less prestige and status, is a substantial change to the essential terms of an employment contract that warrants a finding that the employee has been constructively dismissed. In some decisions, it held that a unilateral change to the method of calculating an employee's remuneration justifies the same finding. Other decisions have found that a significant reduction in an employee's income by an employer amounts to a constructive dismissal. In Mr. Farber's case, he had been demoted and his income had been cut in half. His demotion would have resulted in a considerable loss of status and prestige because he would have been supervising fewer employees in a smaller, less profitable region. The fact that the Dollard branch was one of the least profitable in Quebec further undermined his status and prestige. The change in remuneration was detrimental to Mr. Farber, because not only he would earn less, but also because removing his base salary entirely would subject him to greater fluctuations in income. One final wrinkle to that case was that the Dollard branch turned out to be extremely profitable in the long run. This had no effect on the Court's decision because, at the time of the offer, the Dollard branch was in an extremely precarious financial position. Mr. Farber's calculations that he would lose money by moving to the Dollard branch were therefore reasonable at the time they were made. The growth of the Dollard branch…