Constructive dismissal still under construction.

Author:Bowal, Peter

"constructive dismissal can [occur when]... a series of acts that, taken together, show that the employer intended to no longer be bound by the contract." --Potter v. New Brunswick Legal Aid Services Commission [2015] 1 SCR 500


Constructive dismissal was revisited by the Supreme Court of Canada last year in the case of Potter v. New Brunswick Legal Aid Services Commission []. A unanimous Court expanded the law about constructive dismissal for employees.

Until last year, the main authority was the 1997 case of Farber v. Royal Trust Co. []. In that case, Royal Trust Co., an affiliate of the Royal Bank of Canada, underwent a major reorganization in June 1984, including the elimination of its regional manager positions. As a result, David Farber, the regional manager for Western Quebec, who supervised 400 real estate agents and administered 21 offices, was set to lose his job.

Royal Trust offered Farber the manager's position at the Dollard branch, a position he had held eight years earlier, but did not guarantee him a base salary. The branch was one of the least profitable in the province, which meant that Farber's income, in his opinion, would decline substantially to about half if he accepted the offer. Farber sued employer Royal Trust for damages on the ground of constructive dismissal.

The case reached the Supreme Court in 1997 where it was unanimously stated that:

Where an employer decides unilaterally to make substantial changes to the essential terms of an employee's contract of employment and the employee does not agree to the changes and leaves his or her job, the employee has not resigned, but has been constructively dismissed.

To determine whether the "unilateral changes imposed by the employer substantially altered the essential terms of the employee's contract of employment," the Court articulated the test of whether a reasonable person, in the same situation as Farber, would have felt that the essential terms of the employment contract were being substantially changed. It was an objective assessment, not merely the opinion of Farber.

The Court concluded Royal Trust constructively dismissed Farber, because it:

... substantially altered the essential terms of the employment contract. At the time the offer was made, any reasonable person in the same situation as the appellant would have come to that conclusion. The manager's position at the Dollard...

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