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Employer Advice on Avoiding a Constructive Dismissal Claim

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As a small business recovering from the economic impact of the pandemic, you may be considering measures to cut costs or adapt to a changed labour market. For instance, steps such as reducing employee work hours, temporarily laying off some staff or departments, or even restructuring your business.

As you weigh your options, it is important that you understand the relevant legislation. Being aware of potential risks may help avoid unnecessary legal disputes, such as a constructive dismissal claim.

What is constructive dismissal?

When an employer doesn’t directly fire an employee but changes a fundamental term of employment without any contractual rights or the worker’s consent, it has the potential to be deemed a constructive dismissal. Major changes include significantly altering the employee’s duties or work location or reducing their salary or work hours.

Constructive dismissal can also occur when an employer forces an employee to resign by creating an intolerable work environment.

Since constructive dismissal is treated as a termination of employment, the employer would then be obligated to provide the employee with their entitlements upon termination as per the applicable employment standards legislation.

How can I avoid a constructive dismissal claim?

We recommend that you:

Review your employment contracts

If you are considering reducing the wages or work hours of your staff, it is important that you review your employment contracts first. It is not advisable to alter any fundamental terms of employment without a contractual right to do so or without your employee’s consent.

If your employee consents to the new terms of employment, you should have them sign a revised work contract and provide new consideration (raise, bonus, or new benefits) to your employee. It is also a good practice to include a layoff clause in your contracts that gives you the right to alter certain terms of employment when needed.

Understand the law on temporary layoffs in your province

The employment standards legislation in every province allows employers to temporarily layoff employees. However, there is a maximum permissible length for temporary layoffs in most jurisdictions. This maximum duration varies from province to province. Temporary layoffs that exceed the maximum permissible duration are considered terminations of employment.

In some provinces, such as Ontario, Alberta and Manitoba, the maximum duration of a temporary layoff can be extended if the employee consents to receive wages or benefits in lieu of a fixed limit to the layoff.

In Alberta, the duration of a temporary layoff is normally 90 days in a 120 consecutive day period. For temporary layoffs related to COVID-19, the duration is extended to 180 consecutive days from the initial layoff date.

In British Columbia, the permissible period is 13 weeks in any given 20-week period.

In Ontario, the duration of a temporary layoff can last:

  • 13 weeks in a 20 consecutive week period, or
  • More than 13 weeks in any period of 20 consecutive weeks, but less than 35 weeks in any period of 52 consecutive weeks where the employer meets certain criteria.

Please note that temporary layoffs and constructive dismissals have been frozen in Ontario during the COVID-19 period (March 1, 2020, to July 30, 2022). During this period, employers can place staff on the unpaid Infectious Disease Emergency Leave (IDEL) when temporarily laying them off.

Though Ontario’s O. Reg. 228/20 suspended constructive dismissal under Ontario’s Employment Standards Act (ESA), a recent decision by the Ontario Superior Court of Justice ruled that employees are able to claim constructive dismissal during IDEL in certain circumstances, despite the aforementioned regulation.

These measures will expire on July 31, 2022, and the regular ESA rules on temporary layoffs and constructive dismissal will be in effect.

In Manitoba, employers don’t have to provide notice to employees that they are being laid off. But if a layoff is longer than eight weeks in a 16-week period, it is deemed a termination and notice of termination or pay in lieu of notice is required.

In Saskatchewan, a layoff is defined as the temporary interruption of the services of an employee for a period longer than six consecutive work days. If an employer knows they have to lay an employee off work for more than six consecutive work days, they must provide the worker with notice of layoff or pay in-lieu in the same way they must provide notice of termination or pay in-lieu.

After the employee is provided with the applicable notice of layoff under the Saskatchewan Employment Act (SEA), they can be off work for an indefinite amount of time before they are recalled back to their position.

Please note that the legislation alone can’t be a buffer from constructive dismissal claims. Unless the job contract gives you the right to temporarily layoff an employee, you are never completely protected.

Be transparent with your staff

Let your workers know the challenges your business is facing and the plan going forward. If they understand the need for the temporary layoff or reduction of work hours, they are less likely to consider drastic measures such as a constructive dismissal claim.

If you are temporarily laying off select employees, make sure the criterion for doing so is objective and not discriminatory.

Provide a respectful and harassment-free work environment

If an employee is forced to resign due to abuse or harassment in the workplace, it could be deemed as a constructive dismissal. It is important that you develop and implement company policies on harassment prevention to ensure your workplace is free of harassment, bullying, and violence. Your policies should be included in your employee handbook and shared with all employees.

Do you have questions about constructive dismissals?

Peninsula’s experts can help you update employment contracts and implement best practices to prevent constructive dismissal claims. We can also assist with any HR, health & safety, or employee management advice that you may need. To learn more about how our services can benefit your business, call an expert today at 1 (833) 247-3652.