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The notion of "constructive dismissal"

Both case law and doctrine acknowledge that an employee's decision to leave his employment may have been prompted by his employer's actions, in which case we talk about a constructive dismissal. A landmark decision in this area was the Farber[1] decision of the Supreme Court of Canada, which laid out the four critical aspects of the notion of constructive dismissal, that is:

1. The employer's unilateral decision
2. To make substantial changes to the essential terms of an employee's contract of employment,
3. The employee's refusal to accept the said changes, and
4. The employee leaving his or her job.

Both doctrine and case law acknowledge two types of constructive dismissal. Under the first type, the employer wishes to get rid of the employee and, through its actions, intends to get the employee to resign. In this context, the employee can adduce evidence that the employer acted in bad faith. An example of this type of constructive dismissal would be where an employer who wants an employee to leave substantially modifies the employee's compensation so as to cause him to resign. Under the second type, substantial changes to the employee's working conditions are sufficient for the situation to be considered a constructive dismissal, even where the employer is acting in good faith and does not want the employee to leave. For example, an employee's working conditions are modified as a result of financial difficulties experienced by the company. In that case, the employer would not be considered to have acted in bad faith, as it intended the employment relationship to continue. Whenever a contract of employment is substantially modified, the situation is still considered a constructive dismissal. According to the Supreme Court, where a complainant turns to the civil courts, which apply the Civil Code of Québec ("C.C.Q."), the fact that the employer has acted in bad faith has an impact only on the amount of damages the employee is awarded.

The notion of "constructive layoff" is relevant before the CRT

However, the criteria are not the same before Quebec's Commission des relations du travail ("CRT"). In a recent decision,[2] the complainant, who was a sales person, alleged that he had been constructively dismissed and had thus filed a complaint with the CRT for a dismissal not made for good and sufficient cause in accordance with section 124 of the Act respecting labour standards ("LSA"). He alleged that his working conditions had been substantially modified, that is, as part of the company's restructuring (the company was facing financial hardship and the bank demanded a restructuring plan), his method of remuneration had been modified. The employer alleged that the complaint was unfounded, as the same changes had been made to the contracts of all salespersons in light of the company's significant financial difficulties and that the employer had never intended to terminate the employment relationship with the complainant. In trying to determine the nature of the end of the complainant's employment, the CRT briefly explained the relatively new notion of constructive layoff.[3]

The CRT took the opportunity to emphasize that its jurisdiction is limited to dismissals and that it has to decline jurisdiction if the case in question involves a layoff. More specifically, a dismissal occurs when the employer terminates the contract of employment for reasons relating to the employee in question; by contrast, in the event of a layoff, the contract of employment is terminated for administrative or economic reasons. Unlike the civil courts, whose jurisdiction is governed by the C.C.Q., the CRT is no longer competent to hear the case when the substantial changes to the employee's working conditions are due to economic considerations.

Proof of the reasons for which the employer modified the employee's contract of employment is thus always relevant. These reasons are relevant before the civil courts at the final stage, when the damages are assessed, while they are relevant before the CRT at the preliminary stage, when the CRT determines whether or not it is competent to hear the complaint. Consequently, if an employer successfully proves that its decision to modify the employee's working conditions was based on real economic reasons and that it has not acted in a discriminatory or abusive manner or in bad faith against the employee, the CRT, when asked to hear the complaint pursuant to section 124 of the LSA, will decline jurisdiction. In Dallaire c. Prolab Technolub, the CRT concluded that this was a case of constructive layoff and declined jurisdiction. Five criteria for qualifying the end of the employment relationship as constructive layoff emerge from this decision:

1. The employer's unilateral decision
2. To make substantial changes to the essential terms of an employee's contract of employment
3. For economic reasons
4. The employee's refusal to accept the said changes and

The impact of the Dallaire decision

This decision (available in French only) clarifies the second type of constructive dismissal, that is, the one where there is no malicious intent on the employer's part, and has given it a distinct name: constructive layoff. It has also specified the difference in the impact of introducing in evidence the employer's reasons in support of its decision depending on the forum where the complaint is heard. The CRT is competent to hear constructive dismissal cases, but must decline jurisdiction in the event of a constructive layoff, thus making it necessary for the case to be heard by the civil courts. In the current context where many companies are going through a restructuring process, one must conclude that the CRT will not review an employer's decision to substantially modify its employees' working conditions, even if it results in a constructive layoff.

Catherine Biron

[1]. Farber v. Royal Trust Co., [1997] 1 S.C.R. 846.

[2]. Dallaire c. Prolab Technolub inc., 2007 QCCRT 0440 (CRT).

[3]. However, this is not the very first time that the CRT mentions this notion. The CRT already dealt with the notion of constructive layoff in Leduc c. Communications Quebecor Inc. (Parlons Affaires), D.T.E. 2000T-871 (CRT).

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.

© Ogilvy Renault LLP 2007 - All Rights Reserved

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