Key Takeaways
- • Constructive dismissal: employer unilaterally makes a fundamental change to essential terms of employment or repudiates the contract entirely
- • Two-branch test from Potter v NB Legal Aid 2015 SCC 10: (1) employer's unilateral act that breaches an essential term, or (2) employer's conduct shows intent to no longer be bound
- • Fundamental change assessed objectively — would a reasonable person in the employee's circumstances feel the employer had repudiated the contract?
- • Employee must resign promptly after the change — delay and continuing employment may constitute acceptance
- • Duty to mitigate: must take reasonable steps to find comparable alternative employment after resignin
- • Damages: reasonable notice equivalent (same as wrongful dismissal) minus mitigation earnings
- • Employment Standards Act minimum notice still applies regardless of constructive dismissal claim route
What Is Constructive Dismissal?
Constructive dismissal occurs when an employer, without the employee's consent, unilaterally changes a fundamental term of the employment contract in a way that amounts to a repudiation of the contract, leaving the employee no real choice but to treat the employment as terminated and resign. The employer has not said "you are fired" — but has acted in a way that effectively terminated the employment relationship.
The Supreme Court of Canada in Potter v New Brunswick Legal Aid Services Commission2015 SCC 10 confirmed a two-branch test for constructive dismissal:
The Potter Two-Branch Test
Branch 1: Unilateral Breach of an Essential Term
The employer has unilaterally changed a term of the employment contract and the change constituted a breach of that contract. The analysis asks:
- What were the express or implied terms of the employment contract?
- Did the employer change one of those terms unilaterally?
- Did the unilateral change constitute a breach of that term?
- Was the breach sufficiently fundamental that a reasonable person in the employee's position would feel they had no real choice but to resign?
Branch 2: Employer Conduct Showing Intent Not to Be Bound
Even without a specific breach of a particular term, a course of conduct by the employer that objectively shows an intent to no longer be bound by the employment contract constitutes constructive dismissal. This branch captures systematic harassment, deliberate creation of a poisoned work environment, and patterns of conduct designed to force the employee out without technically breaching any specific contractual term.
Common Forms of Constructive Dismissal in Ontario
| Change | Constructive Dismissal Analysis |
|---|---|
| Significant pay reduction | A unilateral salary reduction of 10% or more is generally sufficient. Lesser reductions may qualify depending on the employee's seniority and the circumstances. Temporary reductions (pandemic-related layoffs) were contested — Ontario courts were divided on whether temporary layoffs constitute constructive dismissal absent contractual authorization. |
| Demotion | A material reduction in title, responsibilities, reporting level, or status. Loss of supervisory authority or removal from a key role are common forms. Merely shuffling duties within the same grade may not qualify — the change must be fundamental. |
| Removal of duties | Stripping an employee of their core responsibilities, sidelining them, or placing them on indefinite administrative leave (without pay or with pay) may constitute constructive dismissal — Potter itself involved an unauthorized administrative suspension with pay. |
| Forced geographic relocation | Relocation without contractual authorization or consent, particularly where the employment contract is silent on relocation or the relocation is to a distant city, is a classic form. Courts consider the distance, personal impact on the employee, and whether relocation was a term of the original employment. |
| Toxic or poisoned work environment | Systematic harassment, discrimination, bullying, or creation of a work environment that is so intolerable no reasonable person could be expected to continue working there. Single incidents of harassment alone rarely suffice — a persistent pattern is typically required. |
| Change in hours / work schedule | A fundamental change to core hours — e.g., switching a day-shift employee to a night shift, or significantly increasing or decreasing hours without authorization. Courts consider whether the change fundamentally alters the nature of the employment. |
| Imposition of new restrictive covenants | Requiring an existing employee to sign a non-competition or non-solicitation agreement not in their original employment contract, as a condition of continued employment, is a unilateral change to terms and may constitute constructive dismissal where the employee refuses to sign. |
Employee's Election: Accept, Resign, or Object
When an employer makes a fundamental unilateral change, the employee has three options:
- Accept the change — continue working under the new terms without objection. This constitutes acceptance of the new terms by conduct. The right to sue for constructive dismissal is lost (or significantly compromised) if the employee continues to work for a significant period without protest.
- Resign and claim constructive dismissal — treat the contract as repudiated, resign promptly, and commence a wrongful dismissal claim. The employee must resign within a reasonable time of learning of the change — courts assess whether the resignation was prompt in the circumstances.
- Object but continue working under protest — the employee continues to work but communicates clearly (in writing) that they do not accept the new terms and reserve their right to claim constructive dismissal. Ontario courts have accepted this approach, though it carries risk that prolonged continuation is treated as acceptance.
Timing Is Critical
An employee who continues to work for months after a fundamental change without protest risks losing the constructive dismissal claim. Courts look at whether the employee's actions were consistent with treating the change as a repudiation or with acceptance. If an employee decides to claim constructive dismissal, prompt written communication of objection and prompt resignation are essential.
Duty to Mitigate
A constructively dismissed employee has the same duty to mitigate their losses as an expressly terminated employee — they must take reasonable steps to find comparable alternative employment. Failure to mitigate will reduce the damages award.
- Mitigation does not require accepting the employer's offer to return —Evans v Teamsters Local Union No 31 [2008] 1 SCR 661 establishes that an employee may be required to return to work for the same employer where the offer is reasonable and does not involve working in a hostile or embarrassing environment. Courts assess whether a reasonable person would return in the circumstances.
- Comparable employment — the employee need only seek employment that is comparable in status, compensation, and nature; they are not required to accept any job
- Documenting mitigation efforts — employees should keep records of job applications, responses, interviews, and any offers received or declined to demonstrate reasonable mitigation efforts
Damages for Constructive Dismissal
A successful constructive dismissal claim entitles the employee to the same damages as an express wrongful dismissal — pay in lieu of reasonable notice:
- Common law reasonable notice — determined by the Bardal factors: character of employment, length of service, age of employee, and availability of similar employment (Bardal v Globe & Mail Ltd (1960) 24 DLR (2d) 140); typically 1 month per year of service as a rough guide, with more for senior/long-service employees
- ESA minimum notice and severance — the Employment Standards Act minimum notice (1 week per year of service, 8 weeks max for notice; 1 week per year for severance where applicable) applies regardless of common law claim; these are floors not caps
- Moral / aggravated damages — available where the employer's conduct in constructively dismissing the employee was bad-faith and caused mental distress beyond what is inherent in any dismissal (Honda Canada Inc v Keays [2008] 2 SCR 362)
- Punitive damages — available in exceptional cases of high-handed or malicious conduct; rare in constructive dismissal cases
- Mitigation deduction — income earned from comparable employment during the notice period is deducted from the damages award
Limitation Periods for Constructive Dismissal Claims
Ontario's Limitations Act 2002 two-year basic limitation period applies to constructive dismissal claims from the date the claim was discovered — typically the date of the fundamental change and the employee's resignation. The 15-year ultimate limitation period also applies.
For Employment Standards Act claims (minimum ESA notice, vacation pay, ESA severance), the limitation period under the ESA is two years from the date of the contravention (s.96(3)). ESA complaints are filed with the Ministry of Labour, not the courts.
Frequently Asked Questions
Does a temporary layoff constitute constructive dismissal in Ontario?
Under the Employment Standards Act, a temporary layoff is not deemed a termination if it complies with ESA requirements (13 weeks in any 20-week period; up to 35 weeks with benefits maintained). However, at common law, a temporary layoff may constitute constructive dismissal where the employment contract does not expressly authorize layoffs — the employment contract is the starting point. Ontario courts have been divided on this issue, particularly in the context of COVID-19 temporary layoffs. Legal advice is strongly recommended.
Can an employer include a term in the employment contract that permits changes?
Yes — an employer can include a contractual term permitting certain unilateral changes (e.g., a relocation clause, a right to change duties within a range). However, such terms must be clear and unambiguous; courts interpret ambiguous contractual terms against the employer (contra proferentem). Even a broad change clause may not authorize a demotion or fundamental reduction in compensation.
What is the difference between constructive dismissal and wrongful dismissal?
Wrongful dismissal (express dismissal without proper notice) involves the employer explicitly terminating the employment relationship without providing reasonable notice or pay in lieu. Constructive dismissal involves the employer effectively ending the relationship through a unilateral fundamental change, forcing the employee to resign. Both give rise to the same damages (pay in lieu of reasonable notice), but the trigger event and the employee's obligation to resign are different.
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