SCC Clarifies Constructive Dismissal – And How Courts will Handle Administrative Suspensions in Potter v. New Brunswick Legal Aid Services

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SCC Clarifies Constructive Dismissal – And How Courts will Handle Administrative Suspensions in Potter v. New Brunswick Legal Aid Services

March 9, 2015

By Shivani Chopra, former lawyer at McInnes Cooper

On March 6, 2015 the Supreme Court of Canada clarified the legal test for constructive dismissal, and specifically explained how courts will handle a constructive dismissal claim rooted in an administrative suspension.

Mr. Potter and his employer started to negotiate an early end to his employment contract in exchange for a financial payment. Before they concluded any agreement, Mr. Potter went on sick leave. His employer surreptitiously recommended termination of his employment for cause and told his lawyer that Mr. Potter shouldn’t return to work until further direction. It then imposed an indefinite administrative suspension with pay – but never gave Mr. Potter any reason for the suspension, never defined its length, and replaced him during it. Mr. Potter sued his employer, claiming it constructively dismissed him; his employer said that by suing it, Mr. Potter voluntarily resigned. The SCC saw it Mr. Potter’s way:

Constructive Dismissal Test. The SCC broke the legal test for constructive dismissal into two main “branches”. An employee can prove the employer constructively dismissed him by meeting either:

The “breach of contract” branch, which has two separate – and distinct – twigs:
- Did the employer breach an express or implied term of the employment contract?
- If yes, was the breach sufficiently serious to constitute constructive dismissal: when the breach occurred, would a reasonable person in the employee’s position – considering only the information he knew then or could reasonably foresee – have felt the employer was substantially changing the essential terms of the employment contract?
The “cumulative past acts” branch: does the cumulative effect of the employer’s past acts show it no longer intends to be bound by the employment contract?

Administrative Suspension. Continuing to pay an employee during a suspension isn’t enough to avoid constructively dismissing her. When the constructive dismissal claim is rooted in an administrative suspension, the “breach of contract” branch applies – but the employer must first prove the suspension was reasonable or justified. This requires the employer to show, at a minimum, it acted in good faith and was candid and forthright with the employee. If the employer fails, the contract breach is proven and the employee must prove that breach amounted to constructive dismissal.

The SCC decided Mr. Potter’s employer constructively dismissed him: it breached the employment contract because there wasn’t any power to suspend Mr. Potter for administrative reasons, the employer didn’t prove the suspension was reasonable or justified in the circumstances anyway, and a reasonable person in Mr. Potter’s position would have felt the employer was substantially changing the essential terms of the contract.

To improve the chances that an administrative suspension won’t ground a constructive dismissal claim, here are three tips for employers based on this decision:

Contractual right to suspend. Consider including a provision in the employment contract that gives the employer the power to suspend the employee. If it’s only in a policy, make sure the policy is a term of the contract.
Communication is Key. If you impose an administrative suspension, communicate the key information to the employee, including why and for how long you are doing so – preferably in writing.
Be Honest. Make sure it’s a real – not an artificial – administrative suspension. Don’t secretly plan the termination and don’t permanently replace the employee during the suspension.

Read the SCC’s decision in Potter v. New Brunswick Legal Aid Services, 2015 SCC 10 here.

Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Labour & Employment Team to discuss this topic or any other legal issue.

McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.

© McInnes Cooper, 2015. All rights reserved. McInnes Cooper owns the copyright in this document. You may reproduce and distribute this document in its entirety as long as you do not alter the form or the content and you give McInnes Cooper credit for it. You must obtain McInnes Cooper’s consent for any other form of reproduction or distribution. Email us at publications@mcinnescooper.com to request our consent.

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