Constructive dismissal is generally a toothless tiger that few employees, when it comes down to it, dare to claim

If an employee is constructively dismissed, they have the right to resign their position and sue just as if they were fired. Because that is effectively what a constructive dismissal is — a firing from the job you have and the offer of a substantially inferior position instead. Sounds like a powerful remedy — in theory.

However, despite a common misunderstanding, not every change to an employee’s term of employment permits them to claim constructive dismissal, resign and sue.

And if the employee gets it wrong, resigns and claims constructive dismissal without sufficient basis, they stand to lose a great deal — not only their job, but their period of unemployment until they find new work, along with the cost of lawyer’s fees and, perhaps most grating, a portion of the employer’s lawyer’s fees too.

That is why you see so few law firms taking constructive dismissal cases on a contingency basis, as there is just too great a risk that the employee will lose and gain nothing.

Whether a worker has been constructively dismissed is not a function of their subjective reaction to the change. Employees may be upset with the change, it may not align with their expectations and hopes of advancement, but whether they have been constructively dismissed is an objective determination made by the courts.

The Supreme Court of Canada defined constructive dismissal in 2015, in a decision called Potter v. New Brunswick Legal Aid Services, as a unilateral change by the employer that breaches the employment contract and substantially alters an “essential term” of that contract.

The court said that the question to ask is whether the employer engaged in a course of conduct which, viewed objectively, would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract. The Supreme Court further put it as, “Would a reasonable person in the situation of the employee feel that the essential terms of the contract were being substantially changed?”

Do not be confused by the word “contract.” Every employee has a contract with their employer, even if it isn’t in writing. It can be oral, written, a function of the actual practice of the parties or a combination of all of those. The employment contract is the terms of the relationship between an employer and employee.

To the point, to be a constructive dismissal, the change to the terms must be “substantial,” and only changes to “essential” terms can constitute a constructive dismissal. Every employment relationship consists of hundreds or thousands of terms, and changing most of them would never amount to a constructive dismissal.

The combination of substantial changes and “essential terms” is why almost all constructive dismissal cases deal with fundamental terms such as the position itself or the remuneration, although sometimes constructive dismissal is found when an employee is treated so abysmally that the court concludes no reasonable person should have to put up with it.

Unlike changes to ones’ position or remunerations, it is this area of a toxic work environment where most employees stumble, by confusing changes that they personally find offensive, humiliating even, and what a court would find to be sufficiently so to permit them to resign.

To take simple examples, being passed over for a deserved promotion or having a subordinate promoted to become their superior may be humiliating to an employee, but it is not a constructive dismissal if their own position remains essentially the same — even if they are genuinely embarrassed before their peers.

Like a dismissal case, in order to be awarded significant damages beyond minimum statutory payments, a constructively dismissed employee must be unemployed for a significant period of time.

So, consider the employee’s plight: they have to resign, remain unemployed, and then be sufficiently confident that a court will find them to have been constructively dismissed that they can risk paying both their own lawyer’s fees for the duration of the case, as well as the opposing lawyer’s fees if they lose.

That is why, unless the case is obviously strong, few employees risk claiming constructive dismissal. It is also why employees will generally accept a radically reduced settlement relative to their potential case before taking the risk of a trial.

There is another risk, however. Pursuant to an older Ontario Court of Appeal case, even if the court concludes that an employee was constructively dismissed, it may decide that the employee should accept the change while looking for another job, and will dismiss their claim if they resign and sue instead. They will do this unless the change involves a significant cut in salary, or if continuing to work would be “objectively” humiliating.

So much as employees bandy about threats of constructive dismissal actions and employers hesitate in making necessary changes for fear of being sued, constructive dismissal is generally a toothless tiger that few employees, when it comes down to it, dare to claim.