What Is Constructive Dismissal

Constructive dismissal is an important component of employment law. Constructive dismissal is tricky and highly technical. Constructive dismissal is defined as a contractual breach where an employer makes a fundamental change to an employment contract unilaterally without obtaining the consent of the employee.

The Legal Test for Constructive Dismissal

When an employer (1) unilaterally makes a change to an express or implied term of the employment contract that a reasonable person in the shoes of the employee would view as substantially altering an essential term of the contract, or (2) otherwise acts in a manner that would lead a reasonable person to conclude that the employer no longer intends to be bound by the contract, the employer commits a repudiation of the contract, which entitles the employee to consider himself or herself constructively dismissed and to claim damages in lieu of reasonable notice.

​Under the first branch of the test, constructive dismissal may occur through substantial, unilateral changes to essential employment terms such as compensation (salary, benefits, or bonus), job responsibilities, reporting functions within the company hierarchy, working conditions, hours of work, the term of employment, or the employee’s location of work.

​Under the second branch of the test, no breach of a specific employment term need occur; rather, constructive dismissal occurs where the employer’s overall conduct indicates it no longer intends to be bound by the employment contract, for example, by a series of actions that cumulatively makes the employee’s position intolerable.

Circumstances that A Constructive Dismissal Has Been Found by Court

A case of constructive dismissal, in employment law context, has been found under the following circumstances:
 

  1. Temporarily laying off an employee where there is no right to do so in the employment contract.

  2. Substantially altering an employee’s established job duties.

  3. Substantially decreasing an employee’s salary, even if on a temporary basis, without employee's consent.

Circumstances that A Constructive Dismissal Has NOT Been Found by Court

However, please notes that the Court has NOT found a case of constructive dismissal under the following circumstances:

  1. Disagreeing with an employer’s proposed formula for calculating a bonus.

  2. An unhappy work environment if, objectively speaking, the conduct complained of does not rise to the level of harassment.

  3. Suspending an employee pending an investigation into substantial misconduct.

  4. An employee’s decision to resign for reasons unrelated to a fundamental change to the employment contract.

  5. Changing an employee’s hours to an earlier start time and disciplining an employee for insubordination.

Time is Of Essence

The courts have generally given employees a reasonable time frame after the change to consider their options. If the employee fails to act within that time frame and treat the contract as terminated, the employee is seen to have acquiesced to the change, and the claim for constructive dismissal is thus extinguished.

Related Constructive Dismissal FAQs:

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