What is Constructive Dismissal?
Constructive dismissal occurs when an employer makes significant changes to an employee’s job without their consent, effectively forcing them to resign. Under Canadian employment law, this is considered a form of wrongful dismissal, entitling the employee to compensation as if they were terminated without cause. If an employer constructively dismisses an employee, the employer cannot rely on any termination provision in the employee’s employment contract to limit their notice entitlements. This typically means that the employee will be entitled to common law notice of their termination, which is based on the employee’s age, length of service, position, and the market for their role.
For a situation to qualify as constructive dismissal, there must be a fundamental change to the terms of employment. This could involve a significant reduction in salary, the removal of key responsibilities, or a forced relocation that drastically impacts an employee’s daily routine. While employers have some flexibility in managing their workforce, major changes cannot be imposed unilaterally without risking legal consequences.
A common trigger for constructive dismissal is a substantial pay cut or the elimination of essential benefits. If an employee was hired under specific salary terms and the employer drastically reduces their earnings without agreement, the employee may have grounds to claim that their contract was effectively breached. Similarly, if an employer demotes an employee without cause or assigns duties far outside their role’s scope, this can be seen as an unjustified change in job expectations.
Beyond financial and job responsibility shifts, a toxic work environment can also lead to constructive dismissal. If an employer tolerates harassment, discrimination, or persistent workplace hostility, the affected employee may argue that the environment has become intolerable, making continued employment impossible. Likewise, forcing an employee into unfavorable schedule changes, such as removing previously agreed-upon flexible hours or implementing unpredictable shifts, could lead to a valid claim.
Common Examples of Constructive Dismissal
Significant Pay Reduction – A substantial decrease in salary, bonuses, or benefits without the employee’s agreement.
Demotion or Role Changes – Altering job responsibilities, job title, or status in a way that diminishes the employee’s role.
Workplace Relocation – Requiring an employee to move to a distant or inconvenient location without prior agreement.
Toxic Work Environment – Creating a hostile work environment through harassment, discrimination, or unreasonable demands.
Unilateral Changes to Work Hours – Forcing an employee to work significantly different hours or shifts without proper notice.
Legal Framework and Employer Responsibilities
Canadian courts assess constructive dismissal using the following test. Employees must demonstrate:
The employer made significant unilateral changes.
The changes fundamentally altered an employees’ job conditions.
The employee did not accept or condone the changes.
The employee resigned in response to the employer’s actions.
Employees who successfully prove constructive dismissal are entitled to the same termination pay and notice as those who are formally terminated.
Employers can mitigate risks by ensuring that any changes to employment terms are communicated transparently and agreed upon in writing. Including contractual provisions that allow for adjustments—such as relocation clauses or temporary layoff terms—can help protect businesses from constructive dismissal claims.
Employer Best Practices to Avoid Constructive Dismissal Claims
Provide Clear Communication – Discuss any job changes with employees and obtain written consent.
Follow Employment Contracts – Adhere to contractual terms and employment policies.
Offer Reasonable Notice – Give employees adequate time to adjust to changes.
Maintain a Respectful Workplace – Prevent harassment, discrimination, and unfair treatment.
For more information on HR best practices, download the HireEase HR Essentials Guidebook today.
For up-to-date lawyer-drafted employment contract templates, visit https://www.hireease.ca/.
Comments