In its recent decision in Matthews v. Ocean Nutrition Canada Ltd., the Supreme Court of Canada considered the law surrounding constructive dismissal. For the background on that case, see the first blog post in this series on the employment law implications of Matthews.
What is constructive dismissal?
Constructive dismissal is a legal concept that allows courts and other decision-makers to decide that an employee has been terminated, even in circumstances where it appears that the employee has resigned from their employment. If someone at work tells you “if you don’t like it, quit!”, it may be worth seeking legal advice on whether you are in a constructive dismissal situation.
Although it is often difficult to recognize and rely on in practice, constructive dismissal can be an important tool for employees who find themselves in an intolerable workplace situation, or dealing with sudden changes to their employment terms. It can also result in significant potential liability for employers, as all of the normal termination obligations are triggered when a finding of constructive dismissal is made.
The law around constructive dismissal tries to a balance an employer’s right to manage its workforce with employees’ expectations that their employment will not change substantially without notice. Not every change to the terms of your employment will amount to constructive dismissal, and employers are allowed to make changes – even significant ones – if they give you sufficient notice.
There are two branches of constructive dismissal:
- The employer breaches an express or implied term of the employment contract.
Usually, this means the employer has made a change to a key term of the employment contract without obtaining an employee’s consent or giving them notice (for example, a 50% pay cut or a mandatory relocation from Vancouver to Winnipeg).
- The employer’s conduct shows an intention not to be bound by the employment contract.
The most common example of this branch is where an employer has allowed (or engaged in) workplace bullying and harassment, resulting in the employee leaving because of a toxic or inhospitable workplace.
Case Example: Matthews
Matthews is a good example of the complexities and consequences of constructive dismissal.
Mr. Matthews resigned from his position as Vice-President, New and Emerging Technologies at Ocean Nutrition Canada Ltd. in June 2011. He found new employment, but sued Ocean Nutrition, claiming that he had been “squeezed out” because his job functions had been reassigned.
The trial judge found that there had been a four-year (ultimately successful) campaign by Ocean Nutrition’s new Chief Operating Office to push Mr. Matthews out of the company, and that Mr. Matthews had been constructively dismissed. The court of appeal agreed, and the parties did not appeal the issue of constructive dismissal to the Supreme Court of Canada (likely because they expected that our highest court would have affirmed that a constructive dismissal had occurred).
Some of the key events leading to the finding of constructive dismissal in the Matthews case include the following:
- In 2007, shortly after the new COO was hired, he changed Mr. Matthews’ role to that of VP of Technical Services and Engineering, a “first step” to pushing Mr. Matthews out and minimizing his influence. The COO also obtained specialized equipment which Mr. Matthews should have acquired as part of his role, and attempted to remove oversight of a plant from Mr. Matthews’ responsibilities.
- Ocean Nutrition was building a new plant in Peru. The COO excluded Mr. Matthews from this initiative, until a different executive stepped in to direct Mr. Matthews to go to Peru and fix the problem. Mr. Matthews was instrumental in getting the Peru plant up and running on time, but the COO then attempted to intentionally exclude him from the grand opening. Again, Mr. Matthews was only invited because another executive intervened.
- In 2009, the COO went behind Matthews’ back and tried to change the Technical Services reporting structure. When confronted, the COO lied about trying to change the structure.
- In 2010, a due diligence process began for the sale of the company, which Mr. Matthews was excluded from. The COO proposed disbanding Mr. Matthews’ department, and gave his opinion that there would be “no place” for Mr. Matthews going forward.
- In early 2011, Mr. Matthews reiterated concerns that he did not have enough work to do. In May 2011, the COO removed another aspect of Mr. Matthews’ duties, leaving him with only 1-2 hours of work a day. Mr. Matthews advised he believed he was being constructively dismissed.
On June 24, 2011, Mr. Matthews resigned.
On January 30, 2017, the company was ordered to pay Mr. Matthews over $1 million in damages (again, see our first post on Matthews for details on how this amount was calculated), a conclusion that was upheld by the Supreme Court of Canada in October 2020.
- There are several simple, common-sense steps an employer can take to reduce its chances of facing a constructive dismissal claim. For example: before changing an employee’s employment terms, give them notice of those changes; build flexibility into your employment contracts; and step in immediately where it appears an employee is being harassed, bullied, or targeted within the company.
- Employees who are concerned about their work environment or changes made to the terms of their employment should proactively seek out legal advice to find out what their options are, including whether they can and should claim constructive dismissal. For more information on what to do if you think you’ve been constructively dismissed, see our previous post, “How Long Can I Wait to Claim I Was Constructively Dismissed? Our Top 4 Tips for Employees”.
The law around constructive dismissal is settled, but applying it is difficult. Ultimately, whether you are an employee or employer, your best first step when you suspect you are facing a constructive dismissal situation is to consult with an employment lawyer.
Have questions about a possible constructive dismissal? Contact us!