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Understanding Constructive Dismissal: Implications for Canadian Employers

May 2, 2024 | Employment Law, Termination, Workplace

Constructive dismissal is a term you might hear often, but its meaning may not be entirely clear. In this article, we’ll delve into what constructive dismissal entails, why it’s important to understand, and how both employers and employees can navigate this complex aspect of employment law. From explaining its definition to exploring strategies to avoid it and its potential consequences, we aim to provide a comprehensive overview of constructive dismissal.

What is Constructive Dismissal?

Constructive dismissal, also known as constructive discharge, is a legal concept in employment law that occurs when an employer makes working conditions so intolerable for an employee that the employee feels compelled to resign. In other words, although the employee technically voluntarily resigns, the resignation is considered involuntary in the eyes of the law because the employer has essentially forced the employee to leave by creating an untenable work environment.

In Canada, constructive dismissal can occur in various situations, such as when significant changes to the terms of employment (e.g., a demotion, a reduction in pay, or changes in job duties) occur without the employee’s consent; harassment or discrimination occurrences in the workplace where the employer fails to investigate or is the perpetrator; or instances when the employer fails to provide a safe work environment, can also result in claims of constructive dismissal. 

Is it Legal?

Constructive dismissal is not legal in the sense that it is not a permissible action for employers to deliberately create intolerable working conditions for employees. In fact, it can be a violation of employment laws and regulations in Canada and other jurisdictions. Employers have a legal obligation to provide a safe and respectful work environment and to adhere to the terms of employment contracts or agreements.

If an employer engages in conduct that amounts to constructive dismissal, the affected employee may have legal recourse to pursue remedies such as compensation for lost wages, damages for breach of contract, or reinstatement to their former position. However, navigating constructive dismissal claims can be complex, and the outcome may vary depending on the specific circumstances of each case and applicable employment laws.

What are the Potential Consequences of Constructive Dismissal?

Constructive dismissal claims can have significant consequences for an employer, both legally and reputationally. Some potential consequences include:

  1. Legal Liability: If an employee successfully proves constructive dismissal, the employer may be liable to pay damages to compensate the employee for losses suffered as a result of the dismissal. This could include compensation for lost wages, benefits, and potentially other damages such as mental distress.
  2. Wrongful Dismissal Lawsuits: In addition to damages for constructive dismissal, the employee may also pursue a wrongful dismissal lawsuit if they believe their termination breached the terms of their employment contract or violated employment standards legislation.
  3. Reputational Damage: Word of the constructive dismissal and any ensuing legal action could damage the employer’s reputation, both within the industry and among potential future employees. This could impact the company’s ability to attract and retain top talent.
  4. Employee Morale and Productivity: Creating a toxic or hostile work environment that leads to claims of constructive dismissal can have a negative impact on employee morale, productivity, and overall workplace culture. This can lead to decreased productivity, higher turnover rates, and difficulties in recruiting new employees.
  5. Legal Costs: Defending against constructive dismissal claims can involve significant legal costs, including the cost of hiring lawyers and potentially paying settlements or court-ordered damages if the claim is successful.
  6. Regulatory Penalties: Depending on the circumstances, the employer may face penalties or fines from regulatory bodies or labour standards agencies for violations of employment laws or regulations related to constructive dismissal.


How to Avoid Claims of Constructive Dismissal?

Employers should focus on creating a positive work environment that respects employees’ rights and fosters open communication. Employers should also ensure that they are investigating when they become aware of harassment or discrimination occurrences in the workplace. Here are some additional strategies to assist in minimizing the potential for claims of constructive dismissal:

  1. Clear Communication: Clearly communicate any changes to employment terms, policies, or job duties with employees. Transparency about decisions affecting their work can help prevent misunderstandings and resentment.
  2. Consistent Policies: Implement and enforce fair and consistent workplace policies and procedures, including harassment, discrimination, violence, human rights, and health and safety policies. Ensure that all employees are treated equitably and that disciplinary actions or performance evaluations are conducted objectively.
  3. Listen to Employees: Encourage open communication and listen to employees’ concerns or grievances. Take complaints seriously and address them promptly and impartially to prevent issues from escalating.
  4. Provide Training: Train managers and supervisors on how to effectively handle employee relations issues, including conflict resolution and performance management. Ensure they understand their role in creating a positive work environment.
  5. Respect Work-Life Balance: Respect employees’ work-life balance and avoid excessive demands on their time or unreasonable expectations. Encourage flexible work arrangements when possible to accommodate employees’ needs.
  6. Promote a Positive Culture: Foster a positive workplace culture based on respect, collaboration, and inclusivity. Recognize and reward employees for their contributions and create opportunities for professional development and advancement.
  7. Review Employment Contracts: Regularly review employment contracts and ensure they accurately reflect the terms and conditions of employment. Avoid making unilateral changes to employment terms without obtaining consent from the employee or providing proper notice and/or consideration.
  8. Seek Legal Advice: Consult with legal counsel to ensure compliance with employment laws and regulations. Stay informed about legal developments related to employment standards and seek guidance on best practices for managing employee relations.

It’s important to note that resorting to what amounts to constructive dismissal as a deliberate strategy still exposes employers to legal risks, particularly if the employee can demonstrate that the employer’s actions amounted to a breach of the employment contract or violated employment standards laws. By fostering open communication, implementing fair policies, and promoting a positive work culture, employers can help to mitigate the risk of constructive dismissal claims and create a conducive work environment for all parties involved.

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Disclaimer: This article is for informational purposes only and cannot be considered legal advice. It provides general information about constructive dismissal and strategies to avoid it. If you require expert assistance on complex HR issues or legal matters, it is advisable to consult with qualified professionals.