By Graeme McFarlane

The Supreme Court of Canada has now provided some much needed guidance with respect to application of the doctrine of constructive dismissal in situations involving administrative “suspensions.”  The Court has now confirmed that these are permissible as long as they are imposed in good faith and for legitimate business reasons.

A Case of (Lacking) Good Faith
In the case before it, the Court held that the employer had not met this test and therefore constructively dismissed the employee and made it clear that “no employer is at liberty to withhold work from an employee either in bad faith or without justification.”

In the decision of Potter v. New Brunswick Legal Aid Services Commission, the executive director of the Commission was placed on indefinite suspension with full pay and benefits when discussions related to a buyout of his fixed term employment contract broke down.  He was instructed not to return to work “until further direction.” No reasons were given for this suspension, but in the background the Commission had requested government to revoke the employee’s appointment and had written a letter to the Minister advocating that his employment be terminated for cause.

Suspension Not Constructive Dismissal
Prior to any such dismissal, the employee started a lawsuit for constructive dismissal related to his suspension. In response, the Commission cut off the employee’s pay by taking the position that by suing it, he had resigned his position.

Before arriving at the Supreme Court of Canada the lower courts had deemed that 1) the suspension did not constitute a constructive dismissal and 2) the starting of a lawsuit “made the continuation of the employment relationship untenable” and as a result, he had resigned.

The majority’s decision clarifies a number of legal principles related to administrative suspensions and constructive dismissal.  There were primarily two reasons for this decision:  1) the employment contract neither expressly or impliedly allowed for such a suspension; and 2) the employee would reasonably viewed the suspension as a substantial change to an essential term of the employment contract.

The leading case on constructive dismissal is Faber v. Royal Trust Co. in which the general principle is described as “when an employer’s conduct evinces an intention no longer to be bound by the employment contract, the employee has the choice of either accepting that conduct or changes made by the employer, or treating the conduct or changes as a repudiation of the contract by the employer and suing for wrongful dismissal.”  Courts take a flexible approach recognizing that employment contracts are different than commercial contracts and are generally more dynamic.

Two Part Test for Determination
There is a two part test for determining one of the ways of reaching a constructive dismissal.  In the first part of the test, a court must decide whether the employer’s unilateral conduct breached an express or implied term of the contract. However, if the contract allows the employer to make such changes, then it will not be viewed as a unilateral act, and therefore will not constitute a breach.  In the second part of the test, the court will decide if a reasonable person in the same situation would have viewed the change as altering a material term of the agreement.  If the breach is minor, it will not be perceived to have modified an essential term and there will be no constructive dismissal.

In applying this test to the case at bar, the court first had to decide if the suspension was authorized by the contract.  There was no express term and the legislation applicable to the position provided no such right.  Therefore, it would have to be an implied authorization.  In its opinion, the Supreme Court of Canada determined that the employer did not have the unfettered ability to withhold work from an employee on an indefinite basis. For an implied authorization to have occurred, the employer needed to show a good faith business justification.

The court departed from earlier decisions that stated that an employer was not obligated to provide an employee work stating that modern employment law has developed to recognize that work is now considered to be “one of the most fundamental aspects in a person’s life.”

Good Faith Requires Candid Communication
To determine whether good faith business justification exists, the court will consider whether there was a legitimate business reason, in good faith for the duration of the suspension and whether the suspension was paid. The employer failed this part of the test primarily because it gave no reason for the suspension. It stated that “in most circumstances, an administrative suspension cannot be found to be justified in the absence of a basic level of communication with the employee.” To act in good faith requires dealings with the employee to be “honest, reasonable, candid and forthright.”  The court similarly held that a reasonable person would reach see the suspension in these circumstances as a material change.

The minority decision determined also that there was a constructive dismissal.  It did so by holding that a constructive dismissal can occur even when no specific term has been breached if the employer demonstrates that it no longer intends to be bound by the contract.  In the case at bar it decided that by seeking permission to terminate the contract for cause while placing the employee on administrative leave, it demonstrated this intention.

This case is important for two reasons.  First, administrative leaves must be carefully justified if the contract does not have express terms allowing them to occur.  Second, employer conduct, even if no term is breached, can lead to a claim of constructive dismissal.

Graeme McFarlane is a partner at Roper Greyell LLP, a firm focused on partnering with companies to find solutions to workplace issues.

(PeopleTalk Summer 2015)