Constructive Dismissal in Ontario: When Quitting Is the Same as Being Fired
Most people understand wrongful dismissal, you are fired without adequate notice or severance, and you have a claim. Constructive dismissal is less understood, but it is just as legally significant and considerably more common than most employees realize.
If your employer changed your job in a fundamental way without your consent, reduced your pay, changed your title, altered your responsibilities, relocated your position, or made your workplace intolerable, you may have been constructively dismissed, even if you were never handed a termination letter. In Ontario, constructive dismissal entitles you to the same remedies as a wrongful dismissal: reasonable notice or pay in lieu, and in some cases, additional damages.
What Is Constructive Dismissal?
Constructive dismissal occurs when an employer unilaterally makes a fundamental change to the essential terms of an employee’s contract of employment. The legal theory is that by making such a change, the employer has effectively repudiated the employment contract, and the employee, by refusing to accept the change, is entitled to treat the employment as terminated and claim damages accordingly.
The Supreme Court of Canada articulated the test in Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10. There are two branches:
The first branch asks whether the employer’s unilateral act constituted a breach of an express or implied term of the employment contract that was sufficiently serious to constitute repudiation. The second branch asks whether the employer’s conduct, viewed in its entirety, demonstrated an intention no longer to be bound by the contract.
In practice, most constructive dismissal claims in Ontario proceed under the first branch, the employer changed something significant about the job without the employee’s agreement.
What Changes Can Amount to Constructive Dismissal?
Not every change to the employment relationship amounts to constructive dismissal. The change must be fundamental, it must go to the core of what the employee agreed to do and how they agreed to be compensated for doing it. Ontario courts have found constructive dismissal in the following circumstances:
Reduction in compensation. A significant reduction in base salary, generally ten percent or more, is frequently found to constitute constructive dismissal. Courts have also found constructive dismissal where an employer eliminated bonuses, commissions, or other variable compensation that formed a substantial part of the employee’s total earnings, even where base salary was unchanged.
Demotion or material change in role. A change in title, reporting structure, or responsibilities that constitutes a meaningful diminishment of the employee’s position can amount to constructive dismissal, particularly for senior employees whose authority and status are a core part of what they bargained for.
Geographic relocation. Requiring an employee to relocate to a different city or region without their consent can constitute constructive dismissal, particularly where the employment contract is silent on relocation or where the move imposes a significant burden on the employee.
Change in hours or schedule. A fundamental change to an employee’s hours, particularly where the change conflicts with family obligations, health needs, or other established arrangements, can be constructive dismissal depending on the circumstances.
Poisoned work environment. Where an employer’s conduct, including harassment, discrimination, humiliation, or deliberate exclusion, makes the workplace intolerable, the employee may have a constructive dismissal claim even without any formal change to the terms of employment. This is the second branch of the Potter test and is generally more difficult to establish.
Suspension without pay. An indefinite unpaid suspension, or a suspension that effectively signals the employer’s intention not to maintain the employment relationship, can constitute constructive dismissal.
The Employee’s Obligation to Mitigate
A critical and frequently misunderstood aspect of constructive dismissal is the employee’s obligation to mitigate their damages. In most circumstances, an employee who believes they have been constructively dismissed has two choices: they can accept the change under protest, or they can resign and bring a claim.
If the employee resigns and brings a claim, they are generally obligated to mitigate their losses by seeking comparable alternative employment, just as any wrongfully dismissed employee must. Failure to mitigate can reduce the damages available, even where the constructive dismissal itself is clear.
However, and this is important, employees are generally not required to continue working for the same employer in the changed conditions as a form of mitigation. The Ontario Court of Appeal has confirmed that in most circumstances, an employee who has been constructively dismissed is not obligated to accept the employer’s offer of the altered position as a mitigation measure, particularly where the relationship has deteriorated significantly.
The Risk of Affirming the Change
One of the most significant practical risks in a constructive dismissal situation is the risk of affirmation. If an employee continues to work in the changed conditions for an extended period without objecting, a court may find that they have accepted the change and waived their right to claim constructive dismissal. This does not mean you must resign immediately, but it does mean that if you believe you have been constructively dismissed, you should act reasonably promptly and document your objection clearly.
The safest approach is to consult an employment lawyer as soon as possible after the change occurs. A lawyer can advise you on whether the change is significant enough to ground a constructive dismissal claim, how to document your objection without triggering an immediate confrontation, and whether there is any benefit to attempting to negotiate the change directly with the employer before resigning.
Damages in a Constructive Dismissal Claim
The damages available in a constructive dismissal claim are generally the same as in a wrongful dismissal claim: reasonable notice or pay in lieu thereof, calculated based on the Bardal factors: age, length of service, character of employment, and availability of comparable employment. For senior employees with long tenure, this can amount to twelve months or more of total compensation, including salary, bonus, commissions, and benefits.
In cases where the constructive dismissal was accompanied by bad faith conduct, including deliberate humiliation, discrimination, harassment, or a dishonest pretext for the change, courts may also award additional damages for mental distress under the principles established in Wallace v. United Grain Growers and its progeny.
What You Should Do If You Think You Have Been Constructively Dismissed
Do not resign without taking legal advice first. The decision to resign and claim constructive dismissal is consequential and irreversible. Once you have resigned, the employment relationship is over and your claim depends entirely on whether the change you experienced meets the legal threshold for constructive dismissal. Getting that assessment wrong is costly.
Document everything before you resign or take any formal step. Keep copies of communications in which the change was announced or discussed. Note the dates on which the change took effect and any objections you raised. Record the impact of the change on your compensation, responsibilities, and day-to-day experience at work.
Then speak to an employment lawyer. A constructive dismissal claim requires careful analysis of your employment contract, your employer’s conduct, and the applicable case law. The strength of your claim will depend on the specifics of your situation, and a lawyer can give you a realistic assessment of your options before you take any irreversible step.
This article is for informational purposes only and does not constitute legal advice. Contact Yombo Grossman Law for a consultation specific to your situation.
