March 12, 2015 By: Karine Dion
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The Supreme Court of Canada has recently issued another decision touching on constructive dismissal, specifically within the context of an employee’s indefinite administrative suspension with pay. In the case of Potter v New Brunswick Legal Aid Services Commission, the Court reaffirms and clarifies the two different approaches in determining whether constructive dismissal exists, and the appropriate analysis that must be carried out.

Mr. David Potter was a lawyer appointed to the position of Executive Director of the New Brunswick Legal Aid Services Commission (“Commission”) in December of 2005, for a seven year term set to expire in December of 2012.

In the spring of 2009, Mr. Potter and the Commission’s Board of Directors (“Board”) had begun negotiating a buyout of Mr. Potter’s contract. Once completed, the end result would be Mr. Potter’s resignation in exchange for an agreed-upon compensation package. However, in October of 2009, prior to having finalized the buyout negotiations, Mr. Potter went on medical leave. The period of his leave was extended twice, the second time period lasting until January 18, 2010.

On January 5, 2010, the Board decided, without alerting Mr. Potter, that if the buyout negotiations were not resolved before January 11, it would request that Mr. Potter’s appointment be revoked for cause as permitted under New Brunswick’s governing Legal Aid Act. On January 11, 2010, it then sent a letter to Mr. Potter’s counsel advising him that Mr. Potter was not to return to work until further notice; his salary and benefits however, were maintained. Mr. Potter’s counsel sought clarification of the situation, but none was provided. Therefore, upon the expiration of his medical leave on January 18, Mr. Potter did not return to work and on March 9, 2010, Mr. Potter commenced an action for constructive dismissal. In response, the Board stopped Mr. Potter’s salary and benefits, taking the position that he had resigned. Mr. Potter was forced to draw on his pension and other benefits for financial reasons.

Both the trial and appeal judges determined that despite the indefinite term of Mr. Potter’s suspension, he had not been constructively dismissed, and that he had instead elected to repudiate his employment contract and resign. The Supreme Court of Canada disagreed.

Although the burden is generally on the employee to establish the existence of a constructive dismissal, the Supreme Court stated that where an administrative suspension is at issue, the initial burden is on the employer to demonstrate that the suspension was justified.

In this case, the Supreme Court of Canada confirms the two approaches for a finding of constructive dismissal: (1) (a) where the employer breaches an express or implied contractual term (b) which substantially alters an essential term of the contract or (2) where the employer’s conduct demonstrates an intention to no longer be bound by the employment contract. This case focused on the first approach, which involves a two-step analysis.

For the purposes of the first step, the Court had to determine whether the Board’s suspension of Mr. Potter amounted to a breach of the employment contract, which necessitated a determination of whether the suspension was a unilateral act. The Court first looked at the employment contract to determine whether it established an express grant of authority to suspend Mr. Potter for administrative reasons. The express terms of the contract were found in the Legal Aid Act which, in the Court’s opinion, comprehensively set out the various powers applicable to the Executive Director’s contract of employment.

The Court found that even though the Board had a broad authority to attribute powers and duties to the Executive Director, this did not include the power to suspend Mr. Potter indefinitely with pay for the administrative reasons given by the Board. In fact, the Board gave no reasons for its suspension, nor were any reasons provided after it was asked for clarification by Mr. Potter’s counsel. Looking to factors such as the duration of the suspension, whether the suspension was with pay, the employer’s good faith, and especially the demonstration of legitimate business reasons, the Court was able to establish that Mr. Potter’s suspension was neither reasonable nor justified. The Court also did not agree that Mr. Potter consented to his suspension, even if he was interested in a buyout. For these reasons, the Court determined that the suspension was unauthorized and that the contract had therefore been breached.

Moving on to the second step of the analysis, the onus shifts to the employee to establish that at the time of the suspension, “a reasonable person in the same situation as [Mr. Potter] would have felt that the essential terms of the employment contract were being substantially changed”. The Court found that Mr. Potter had discharged his burden:

It was reasonable for Mr. Potter to perceive the unauthorized unilateral suspension as a substantial change to the contract. As far as he knew, he was being indefinitely suspended and had been given no reason for the suspension. The letter to Mr. Potter stated that the suspension was to continue “until further direction from the Commission”. When Mr. Potter had his lawyer write to request clarification of the Board’s instructions, the Board persisted in its silence regarding the reason and simply stated that he “is not to return to work until further notice”. In my opinion, that is sufficient to discharge Mr. Potter’s burden here. Knowledge of the reasons given by the Commission at trial should not be imputed to Mr. Potter as of the time of the suspension.

As the Board had no authority, whether express or implied, to suspend Mr. Potter indefinitely with pay for the reasons it gave, and that the suspension was a substantial change to the essential terms of his employment contract, the Court concluded that Mr. Potter had been constructively dismissed and was entitled to damages.

As clarified by the Supreme Court, constructive dismissal can take two forms: that of a single unilateral act that breaches an essential term of the contract, or that of a series of acts that, taken together, show that the employer no longer intends to be bound by the contract. Whichever form exists, both will nevertheless necessitate an analysis of the specific facts at play in order to determine whether an employee has in fact been constructively dismissed.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Employment Law