A different kind of wrongful dismissal

Constructive dismissal is an area of employment law that is highly technical.  It requires specific legal expertise to understand and resolve. Many constructive dismissal cases fall apart in trial because the plaintiff did not have the knowledge or support required to prove his or her case. The plaintiff may have not taken action in a timely manner or may have continued to work under terms not within the original contract, inadvertently ‘condoning’ them.   If you think you may have been constructively dismissed, you should contact an employment lawyer immediately – time is of the essence in constructive dismissal situations.

All forms of employment involve a contract, whether it is oral, written or a combination of both.  A contract is breached when one party to the contract fails to live up to one of its obligations.  See our article on Employment Contracts for more information.

Fundamental terms

Constructive dismissal happens when the employer changes a fundamental term of the contract unilaterally, without the agreement of the employee, and without giving prior notice, either reasonable notice or contractual notice, to the employee.  Where these changes do not benefit the employee, a constructive dismissal may take place.  Examples of disadvantageous changes include reductions in wages, hours, or benefits.  Whether a term is ‘fundamental’ depends on the particular circumstances of the case, but wages are always a fundamental term of employment contracts.

Repudiation and condonation

The law considers that unilateral changes to fundamental contract terms constitute the employer’s ‘repudiation’, or rejection, of the whole contract.  The employer’s actions show that it does not intend to be bound by the existing contract.  The employee who acts in a timely way can accept the repudiation, bringing the contract to an end, and may pursue the employer for damages in a wrongful dismissal claim.

If the employee continues to work under the changed terms of the contract, it may show that he or she agrees to the new terms of the contract, or ‘condones’ the changes.  The employee is allowed a limited amount of time to test out the new conditions before he or she is considered to have condoned the changes, however it is best to contact legal counsel as soon as possible to determine whether a constructive dismissal has taken place.

The most common form of constructive dismissal is that brought on by reduction in pay.   As noted above, wages are always a fundamental term in employment contracts.  The term ‘wages’ includes salary or hourly wage, commissions, bonuses and other forms of remuneration.  Whether the change to the contract is a ‘mere breach’ or a ‘fundamental breach’ which goes to the root of the contract depends on the severity of the breach.  BC courts have held that a wage reduction of over 30% entitles the employee to consider himself or herself constructively dismissed.  A reduction of less than 30% must usually be combined with some other breach to be ‘fundamental’. Changes to an employee’s title or duties can also produce a constructive dismissal.  When an employer changes or reduces the title, duties or hierarchical standing of an employee, including reporting functions and responsibilities, this is a potential constructive dismissal in the form of a demotion.  In any of these circumstances, the employee may have the right to bring action against their employer to receive fair compensation.