Constructive Dismissal and Resignation

When an employer, typically for good business reasons, unilaterally changes the terms of an employee’s work conditions, such as duties or title, the employer runs the risk of a complaint by the employee that the change constitutes a constructive dismissal. On the advice of his or her own lawyer the employee may refuse to go along with the change, treat the change as tantamount to an actual dismissal (which is what the law calls constructive dismissal) quit and make a claim for damages. The legal issue for the employer then becomes whether the employee has resigned, in which case the employer owes nothing by way of severance compensation, or whether in fact the employee is correct and will likely be successful in the claim for damages for wrongful dismissal. The damage claim will be based primarily on the total compensation that the employee would have received over a period of reasonable notice had notice of termination been given. These days it is not uncommon for employers to also face claims for damages for alleged discrimination on some basis under the Human Rights Code as well as additional claims for moral damages, depending on the overall conduct of the employer.

There are risks for both sides, not least of which is the significant cost of litigation, the inevitable delay due to the court system and the inherent uncertainty of any litigation, even on the strongest set of facts, because a judge may just get it wrong. The cost factor is aggravated by the general rule that the party which loses if the case ever gets to trial will also be ordered to pay a portion of the costs of the successful party.

These cases are also complicated by issues such as the employee’s duty to mitigate damage by seeking out alternative employment, a duty which may, depending on all the circumstances, require the employee to stay in the job and accept the change if the change is not objectively considered humiliating, an issue that cannot effectively be determined unless the case is actually determined at a trial. This issue creates a risk for an employee because a court could after months or more likely years of litigation and expense decide that the employee should have accepted the change as part of the duty to mitigate.

These cases often raise questions of principle. However, our court system is not always the best place to rest on principle. Both the employer and employee are often better advised to try to reach a cost-effective resolution, involving a degree of compromise that will save both a lot of money in legal expense and potential damages. The basis of that compromise will be informed by an objective and experienced judgment as to the likely characterization of events by a court and the most probable outcome if the matter is litigated. In addition, both sides try to manoeuvre to create the record and to position themselves on issues in a way that supports and highlights their version of the relevant facts.