Help! An employee is claiming constructive dismissal


As I discussed in my previous post, constructive dismissal is “a unilateral and substantial change to a fundamental term of the employment contract or relationship.” Procedurally, constructive dismissal raises some interesting questions.

“regular” dismissal is simple, in the sense that the primary issue is how much notice, or pay in lieu of notice, the individual is entitled to. But in the case of an alleged constructive dismissal, it is not even clear whether the individual has been dismissed and, in many cases, they are still working.

So what should happen when an employee claims constructive dismissal? Can the employer show them the door? Does the employee have to keep working to mitigate their damages?

There are two types of situations where a constructive dismissal can be alleged: the first is where an employer introduces substantial changes without any warning; the second is where an employee learns that substantial changes to their job are forthcoming.

Immediate changes
Employees will be allowed a reasonable period of time to assess the suitability of any changes. After that, they will be deemed to have accepted the changes and lose their right to claim constructive dismissal. A prudent employee will explicitly advise the employer that they are assessing the changes in good faith and should not be deemed to have accepted them while they do so. Of course, they cannot assess the changes indefinitely, though there is no absolute rule as to how long they have to do so.

If the employee either accepts the changes or waits too long to object, then there may be no issue and their employment will simply continue under the new terms. However, if the employee objects, then a decision must be made: the employer can either proceed with the changes or return to the previous terms of employment. If they choose the latter, then the issue is at an end.

If the employer decides to proceed with the changes, they should tell the employee that if they don’t accept the changes, their employment will terminate. In that case, the employer will be liable for notice of dismissal or pay in lieu.

Of course, since employees have a duty to mitigate, the employer should then make a strategic offer of continued employment under the new terms as an opportunity for the employee to satisfy their duty to mitigate. Employees who decline to do so take the risk that even if their claim for constructive dismissal is successful, their recovery will be reduced.

Giving notice of the change
In some cases, it will be strategic to give advance notice of the proposed change. Doing so can reduce the employer’s potential liability since this notice can effectively count as notice of termination. To do so, the notice should clearly state that if the employee rejects the new terms, their employment will terminate at the end of the notice period. In the meantime, the employment relationship will continue with the status quo. The employer should then provide a clear offer of re-employment on the new terms to commence after the end of the notice period.

The employee will then be expected to continue working throughout the notice period. If they have not accepted the new terms of employment by the end of the reasonable notice period, then their employment will terminate. If sufficient notice was provided, they would not be entitled to further pay in lieu of notice or severance, aside from any statutory requirements.

If the employee continues working after the notice period ends under the new terms, then they will have effectively accepted those terms and a new contract will be in place.

It is also open to the parties to attempt to negotiate the issue and reach a compromise. An employee can preserve their right to claim constructive dismissal by objecting to the change but indicating their willingness to continue working while they negotiate in good faith. This also helps them to prevent a claim that they failed to mitigate their damages.

Of course, at some point, the employee will have to leave or be deemed to have accepted the changes. At that point, they should not simply resign, but clearly state that they are doing so due to the fact that they were constructively dismissed

When do you have to mitigate?
In some cases, an employee will not be expected to continue working under the new terms in order to mitigate their damages. This is a question of reasonableness: whether a reasonable person would be expected to continue working. Many factors will be assessed, including the extent of the changes, whether the changes would cause it to be demeaning or humiliating for the employee, and whether the relationship has become too acrimonious to be viable.

Constructive dismissal in a pandemic
During the COVID-19 pandemic, many businesses have been forced to reduce employee hours and pay. We worked with many clients to obtain the consent of their employees, but if an employee does not agree, they had a choice to make: resign or continue working under the changed terms. We have advised many employees who adopted the strategy of objecting to the change but mitigating their damages by continuing to work. Of course, many other employees have been temporarily laid off, in which case mitigating by continuing to work was not an option.

The bottom line is that employers do not have carte blanche to change the employment relationship. However, by understanding the law of constructive dismissal, it is possible to minimize liability when implementing changes.

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