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Canadian Employment Law Today | 3 Canadian HR Reporter, a Thomson Reuters business 2015 Cases and Trends Supreme Court of Canada weighs in on constructive dismissal Suspension can lead to constructive dismissal, even if it's paid BY RONALD MINKEN THE LAW surrounding constructive dis- missal has changed considerably over the past few years, sometimes making it difficult for employees to successfully prove an en- titlement to damages based on constructive dismissal. On March 6, 2015, the Supreme Court of Canada weighed in on the issue of constructive dismissal in Potter v. New Brunswick (Legal Aid Services Commission). In Potter, Canada's top court determined that the employee had been constructively dismissed when his employer suspended him with pay indefinitely and awarded the employee damages representing the bal- ance of the seven-year fixed-term contract. e employee, David Potter, was hired for a seven-year contract and held the posi- tion of Executive Director of Legal Aid of New Brunswick. e terms of the Potter's appointment as Executive Director were governed by s. 39 of the province's Legal Aid Act. After completing almost four years of the seven-year contact, Potter and the employer entered into negotiations where- by Potter would buy out the balance of the contract and, in exchange for the compen- sation package, Potter would resign. e employer wished to expedite negotiations and, without informing Potter, decided that if an agreement was not reached by a speci- fied date, it would request that the Lieuten- ant-Governor in Council revoke Potter's appointment for cause pursuant to s. 39 of the Legal Aid Act. When the deadline passed without an agreement being reached, the employer sent a letter to the Minster of Justice recom- mending Potter be dismissed for cause and without first informing him. e employer then sent a letter to Potter informing him that his employment was being suspended with pay. About eight weeks later, Potter commenced an action against the employer for constructive dismissal. In response, the employer discontinued Potter's pay and benefits, taking the position that Potter had resigned his position due to the commence- ment of legal action. e action was heard by the New Bruns- wick Court of Queen's Bench, which de- termined the employer had the statutory authority to place the employee on an ad- ministrative suspension with pay and dis- missed the action. Potter appealed to the New Brunswick Court of Appeal, which dismissed the appeal. Potter appealed again to the Supreme Court of Canada. e top court reviewed the conduct of the parties along with the Legal Aid Act and concluded that Potter had been construc- tively dismissed due to the fact that the em- ployer lacked the authority to suspend him indefinitely with pay and this indefinite sus- pension resulted in constructive dismissal. e top court examined the two-step test to establish constructive dismissal. With respect to the first step, the court stated that it must "determine objectively whether a breach has occurred. To do so, it must ascertain whether the employer has unilat- erally changed the contract. If an express or an implied term gives the employer the authority to make the change, or if the em- ployee consents to or acquiesces in it, the change is not a unilateral act and therefore will not constitute a breach. If so, it does not amount to constructive dismissal. More- over, to qualify as a breach, the change must be detrimental to the employee." If a breach has occurred, the second step involves the court determining whether "at the time the breach occurred, a reasonable person in the same situation as the employ- ee would have felt that the essential terms of the employment contract were being sub- stantially changed. A breach that is minor in nature in that it could not be perceived as having substantially changed an essen- tial term of the contract does not amount to constructive dismissal." e Supreme Court found that as the employer did not have the authority to sus- pend Potter indefinitely and since the sus- pension was administrative in nature (rath- er than disciplinary), the burden shifted to the employer to establish that the suspen- sion was reasonable. As the purpose of the administrative suspension was to facilitate the negotiation of the buyout, the employer was unable to establish that the administra- tive suspension was reasonable. e court also determined it was reasonable for Pot- ter to perceive the unilateral suspension as being a substantial change to his contract of employment. e court awarded Potter damages representing the balance of the contract and did not make any deduction due to Potter's receipt of pension benefits in accordance with the principles established by the Supreme Court of Canada in IBM Canada Limited v. Waterman. While this case is very fact and legisla- tion specific, it does provide greater un- derstanding of the two-step test to evaluate claims of constructive dismissal. Lessons for employers is decision demonstrates that some ad- ministrative suspensions, even if they are with pay, may trigger a claim of construc- tive dismissal and result in considerable li- ability for employers. While establishing an entitlement to damages based on construc- tive dismissal is a multi-step and sometimes a challenging process, employee claims can be successful and employers should take precautions to minimize their vulnerability to such claims. Lessons for employees Employees should be aware that while not all unilateral changes implemented by an em- ployer will be detrimental enough to trigger a constructive dismissal, some changes re- sult in an entitlement to damages. When in- formed of upcoming changes to the terms of employment, whether small or large, prior to agreeing to these changes they should in- vestigate to determine whether the changes are likely to support a claim of constructive dismissal. For more information see: • Potter v. New Brunswick (Legal Aid Ser- vices Commission), 2015 CarswellNB 87 (S.C.C.). • Waterman v. IBM Canada Limited v., 2013 CarswellBC 3726 (S.C.C.). ABOUT THE AUTHOR RONALD S. MINKEN Ronald S. Minken is a senior lawyer and mediator at Minken Employment Lawyers, an employment law boutique in Markham, Ont. He can be reached at www.MinkenEmploymentLawyers.ca. Ron gratefully acknowledges Sara Kauder and Kyle Burgis for their assistance in preparation of this article.