Ontario Constructive Dismissal: Unilateral Changes, the Resignation Election, and Damages

The Legal Test for Constructive Dismissal

The Supreme Court of Canada articulated the definitive test for constructive dismissal in Potter v New Brunswick Legal Aid Services Commission [2015] 1 SCR 500. Justice Abella identified two branches under which constructive dismissal may be established:

1. Single act branch: The employer's act constitutes a breach of an express or implied term of the employment contract, and the breach is substantial enough to go to the root of the contract. This includes both express terms (compensation, title, duties) and implied terms (the obligation to maintain a safe workplace, the obligation not to act in bad faith).
2. Course of conduct branch: A series of acts by the employer, when viewed collectively, demonstrate that the employer no longer intends to be bound by the contract, even if no single act constitutes a fundamental breach.

In both cases, the analysis is objective: would a reasonable person in the employee's position have felt that the essential terms of the contract were substantially changed?

What Changes Constitute Constructive Dismissal

Compensation Reductions

A significant reduction in base salary or total compensation is among the most common grounds for constructive dismissal. Ontario courts have found constructive dismissal where:

• Base salary reduced by 15% or more (courts look at the magnitude)
• Bonus structure eliminated or substantially modified where bonuses were an established and material part of compensation
• Commission structure restructured to make earning previous income levels practically impossible

Temporary pay reductions during a genuine business crisis may be assessed differently, but the employer bears a heavy burden of demonstrating the reduction was reasonable and temporary.

Demotion and Reduction in Responsibilities

A significant reduction in the employee's role, title, reporting level, or decision-making authority can constitute constructive dismissal, particularly for senior employees where status and responsibility are central to the contract. Moving a VP to a non-managerial role, reassigning a regional manager to a subordinate position, or stripping major accounts or business lines from a senior employee may all qualify.

Forced Relocation

A unilateral requirement to relocate to a different geographic location — particularly a distant location without adequate compensation — can be constructive dismissal if the employment contract did not contemplate relocation. Courts weigh the distance, notice given, business justification, and whether the employee was compensated for relocation costs.

Suspension Without Pay

In Potter, the Supreme Court found that an indefinite administrative suspension without pay, combined with a failure to communicate the reasons for the suspension, constituted constructive dismissal. The Court held that the implied duty to provide work includes an obligation not to suspend without cause in appropriate circumstances.

Temporary Layoff

Ontario courts have consistently held that a unilateral temporary layoff constitutes constructive dismissal at common law unless the employment contract expressly incorporates the right to lay off. The ESA's temporary layoff provisions (ss. 56-57) do not override the common law contract — they merely limit the employer's ESA obligations during the layoff period.

Employers who want to be able to temporarily lay off employees without triggering constructive dismissal claims should ensure this right is expressly stated in the employment agreement.

Poisoned Work Environment

A series of harassing, demeaning, or discriminatory acts by an employer or manager that make the workplace conditions intolerable may collectively constitute constructive dismissal under the course of conduct branch, even if each individual act might not be sufficient alone.

The Employee's Election: Resign or Affirm

When faced with a fundamental unilateral change, the employee must make an election:

• Resign promptly and sue — the employee treats the change as a repudiation of the contract, resigns, and brings a wrongful dismissal claim. The resignation must be prompt — continued employment after the change may be interpreted as acceptance of the new terms.
• Continue working under protest — the employee may continue to work while expressly and clearly reserving the right to claim constructive dismissal (communicating this to the employer in writing). Courts have recognized this option, but the employee must be clear and must not delay unduly before commencing a claim.
• Affirm the new terms — if the employee continues working without protest for an extended period, the courts may find that the employee has accepted the new terms and forfeited the right to claim constructive dismissal.

The strategic advice to a client facing a constructive dismissal situation must address this election promptly — the decision is typically time-sensitive.

Damages: Reasonable Notice at Common Law

A constructively dismissed employee is entitled to the same damages as a wrongfully dismissed employee — reasonable notice or pay in lieu. The Bardal factors (Bardal v Globe and Mail (1960), 24 DLR (2d) 140) remain the primary framework:

• Age of the employee
• Length of service
• Character of employment (seniority of role)
• Availability of similar employment in the market

There is no strict cap on common law notice, but courts rarely award more than 24 months except in exceptional cases. For long-service senior employees over 50, 18-24 months is common. Junior employees with short tenure may receive 3-6 months.

ESA Minimums

The ESA provides a floor that applies regardless of the common law award:

• Termination pay (Part XV, s. 54): 1 week per year of service (or fraction thereof), capped at 8 weeks, for employees with 3+ months service
• Severance pay (Part III, s. 64): 1 week per year of service (or fraction thereof), capped at 26 weeks, for employees with 5+ years service whose employer has a payroll of $2.5 million or more (or who eliminated 50+ jobs)

Employment agreements that attempt to limit notice to ESA minimums must comply with the requirements in Waksdale v Swegon North America Inc 2020 ONCA 391 — if any provision in the agreement is unenforceable under the ESA, the entire termination provision may be void, entitling the employee to common law reasonable notice.

Duty to Mitigate

A constructively dismissed employee has a duty to mitigate damages by taking reasonable steps to find comparable employment. The employer bears the burden of demonstrating failure to mitigate. Courts require active job searching at a level appropriate to the employee's seniority and experience.

Ontario courts have held that an employee is not required to accept the same position with the same employer as mitigation where the relationship has been fundamentally damaged (Evans v Teamsters Local Union No 31 [2008] 1 SCR 661 — but courts require genuine and compelling reasons).

Aggravated and Punitive Damages

Aggravated damages for mental distress are available in Ontario where the employer's conduct in the manner of dismissal was independently tortious or breached the implied duty of good faith (following Honda Canada Inc v Keays [2008] 2 SCR 362). Punitive damages require conduct that is malicious, oppressive, or high-handed and that offends the court's sense of decency.

How Atticus Helps Ontario Employment Lawyers

Constructive dismissal files require careful documentation of the sequence of employer actions, communications, and the employee's election — combined with damages analysis and limitation period management. Atticus supports Ontario employment lawyers with:

• Limitation period tracking — the 2-year limitation period under the Limitations Act 2002 runs from the date the employee was constructively dismissed (or ought to have known); AI extracts key dates from correspondence and employment agreements
• Matter management — track the timeline of employer conduct, employee communications, and litigation milestones in a single client file
• Document analysis — AI reviews employment agreements, termination clauses, and offer letters to surface key terms and potential enforceability issues
• Time tracking — track contingency fee or hourly time on employment matters with integrated HST billing