Constructive Dismissal: Resignation with Severance

by Stephen Gillman

Friday, September 30th, 2016 at 8:00 am

Constructive Dismissal: Incorrect Assumptions

In today’s challenging economic climate, change is constant. Businesses are forever expanding, reorganizing, and downsizing. At times change can be good, for an employee it may mean a promotion, salary increase, or more responsibility. For a business, it may mean a more flexible workforce, business growth, or greater opportunity. While change can be positive, often it is not. Business are faced with difficult decisions in the face of economic uncertainty and employees are asked to accept  demotions, pay reductions, a transfer to a faraway location, or some other form of fundamental change to their position.Constructive Dismissal Divider 1

When faced with changes in the workplace, employees often feel that refusing the change gives their employer the right to constructive dismissal. Alternatively, employers often assume that if an employee resigns due to change that the employee is not entitled to severance. Both common assumptions are completely incorrect.

Constructive Dismissal: What Is It?

What is constructive dismissal? At its core, it is when an employee has made a decision to resign from their employment because the change made or requested by their employer is not possible, or would result in fundamental change to their employment.

Frequently, employees believe that if they make a decision to leave their employment, they are not entitled to severance or that the decision would somehow impact the amount of severance they are owed. This is also incorrect. If an employee resigns because the change the employer has mandated is too substantial, that employee has been wrongfully dismissed and is owed severance.

A common example of constructive dismissal would be an employer requiring an employee to work on a different shift. Often such changes impact childcare, religious, or other important obligations. If the change required is not possible or would cause substantial hardships then the employee has a right to resign and treat their resignation as a termination. This is despite the fact that the employer has not formally dismissed that person.

Other examples of circumstances that could give rise to constructive dismissal are relocation, demotion, lay off, or pay reduction. Generally speaking, an employee has a right to a fair and stable work environment and is not required to accept any changes which have a substantial impact on their personal or work life.

Listen to Senior HR Specialist Chuck Talahari discuss constructive dismissals in this teleseminar.

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In the same way an employee is free from changes that impact their personal and professional life, an employee is not expected to remain in a workplace where they are facing discrimination or a ‘poisoned’ work environment. Common examples would include harassment, unwarranted discipline, and discrimination. If the employer is unable to correct the situation, it is the employee’s right to refuse employment. Discrimination, harassment, or loss of dignity in the workplace can attract a claim for constructive dismissal in which the employee is owed severance.

Common changes amounting to constructive dismissed include:

  • Reduction or elimination of any compensation such as salary, bonuses, commissions, benefits, or pension entitlements.
  • Failure to provide an employee with any component of compensation.
  • A layoff without an express contractual right to do so.
  • Transfer of an employee to another territory or geographic location.
  • Demotion, reduced responsibilities, or placement in a substantially different position.
  • Creation or engenderment of a ‘poisoned’ work environment.

Takeaway for employers:

  • Always seek legal advice before implementing changes in the workplace.
  • Discuss any possible change with the workforce prior to implementation and seek a “buy in” before implementation.
  • Ensure proper policies and practices are in place to avoid the creation and promotion of a “toxic” or “poisoned” work environment.

Takeaways for employees:

  • Anytime a change to your employment is requested or proposed always seek legal advice.
  • If a change is proposed, consider the impact it will have on your personal and professional life before accepting the change.
  • If you feel you are being forced to work in a “toxic” or “poisoned” work environment, make sure your employer is aware and is actively addressing your concerns
Constructive Dismissal: when an employee resigns because a change requested by their employer is not possible. Click To Tweet

Stephen Gillman is an associate lawyer with Samfiru Tumarkin’s Labour and Employment Law Practice Group in Toronto, Ontario.

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