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Can a paid suspension amount to constructive dismissal?

2 minute read

Constructive dismissal occurs where an employee resigns, but the departure is treated in law as if there was a dismissal by the employer. The legal principles involved in constructive dismissal cases are not as straightforward as most employees or employers would prefer, since each case is decided on its particular facts.

In Potter v New Brunswick Legal Aid Services Commission, 2015 SCC 10, the Supreme Court of Canada considered whether an employee who was suspended with pay had been constructively dismissed. The decision of the Supreme Court of Canada in Potter builds on the approach established by that Court in its 1997 decision in Farber v Royal Trust Co. Court decisions since Farber have provided further guidance on the types of unilateral changes by the employer which amount to constructive dismissal. Most of the actions by an employer that amount to constructive dismissal involve a demotion of the employee; a substantial reduction in compensation; or, a transfer involving a change of geographic location.

Potter was the Executive Director of the New Brunswick Legal Aid Services Commission. The employment relationship deteriorated; they began negotiating a buyout of the employment contract; and, his employer suspended him indefinitely with pay.

The Supreme Court noted that the test for constructive dismissal requires a determination about whether a term of the employment contract was breached, and whether the breach is sufficiently serious. The employer's unilateral change must breach the contract and must substantially alter a fundamental term. There must also be a decision made about whether a reasonable employee would have felt that essential terms of the employment contract were being substantially changed.

The Court concluded that even where there is an implied power to suspend, it is subject to a requirement of business justification. Potter was given no reasons for the suspension, and the Court noted that a suspension could not be justified without a basic level of communication with the employee. Acting in good faith required the employer to be honest, reasonable, candid and forthright, and failing to give an employee any reason for a suspension was not being forthright.

The Court concluded that Potter had been constructively dismissed in light of among other things, the indefinite suspension and the fact that the employer withheld reasons for the suspension. According to the Court, the employer did not have authority, whether express or implied, to suspend indefinitely with pay, and the suspension was a substantial change to the contract, which amounted to constructive dismissal.

This case shows that, in order to avoid costly constructive dismissal litigation, both employers and employees may need legal advice about the circumstances that justify suspension before imposing or responding to a suspension.

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