Constructive Dismissal: Reducing the Employer’s Risk
An employment relationship is a contractual arrangement, whether the employment agreement is expressly written or verbal. An employment agreement lays out the terms of employment, obligations, and expectations of the employer and the employee.
An employer can face a constructive dismissal claim from their employee if they unilaterally change or breach the terms of an employment contract. It is also entirely possible that the mismanagement of a toxic work environment results in an employee’s claim.
However, what is constructive dismissal? What are some examples and how can an employer reduce their risk of constructive dismissal claims in the workplace?
This article will answer the above questions by explaining what constructive dismissal is, what some examples and how an employer can reduce their risks.
What Is Constructive Dismissal?
Constructive dismissals are terminations of employment with actions instead of words. It can occur in situations where an employer has not expressly fired an employee but changes or fails to adhere to a significant aspect of an enforceable employment agreement. For example, an employee claim can arise when:
- The employer breaches a core term of the employment contract;
- The employer unilaterally changes a significant or core term of an employment agreement; and/or
- The employer represents to an employee that they intend to do either of the above, thus forcing the employee to quit.
However, if the employee expressly consents to the changes, they are less likely to succeed in claiming constructive dismissal against their employer. For instance, if an employee does not reject an employer’s change to their employment within a reasonable amount of time, it may indicate their acceptance of the new terms and conditions of their contract. This occurs commonly when an employee continues working for an employer despite the change, instead of leaving the workplace and asserting their claim for constructive dismissal promptly.
Employees can also claim constructive dismissal if an employer subjects them to or fails to properly address a toxic workplace. In such circumstances, an employee could argue the employer made it unreasonable for them to return to work and, therefore, unduly terminated their employment.
Like other forms of termination without cause, being sued for constructive dismissal opens an employer to liability for paying severance and additional damages. How much severance an employer might owe an employee, and the legal risk of other damages will depend on the unique circumstances of each case.
What Are Examples of Constructive Dismissal?
Most constructive dismissal claims result from changes in the employee’s working conditions, entitlements and/or duties. Typical cases of constructive dismissal include:
- When an employee claims they are forced to quit in response to an employer’s threats of dismissal and/or demotion;
- When the employer reduces the employee’s hours, compensation, duties, and/or benefits;
- When the employer breaches or changes fundamental terms of the employment agreement in other ways, such as reassigning an employee to work in another geographic location, or laying off an employee without pay; or
- Where an employee is subject to workplace bullying and harassment that makes it unreasonably difficult for them to continue working.
Not all changes made to an employment contract will amount to a constructive dismissal. For instance, the courts in Ontario have held that less than a 15% salary reduction will generally not result in a constructive dismissal. Constructive dismissals are extremely fact specific, and what might be considered a significant change or breach in one scenario may not be in others.
As an employer, you may be concerned about making any changes to your employees’ agreements or taking workplace action that could trigger a constructive dismissal. There are a few general ways employers can reduce their risk of making changes in the workplace that result in constructive dismissal claims.
How to Minimize Risks of Constructive Dismissal Claims
If an employer is going to change the terms of an employment agreement, they should know the terms of the agreement, recognize that the change may trigger a constructive dismissal, and plan accordingly. A well-planned strategy to change the employment relationship will reduce the likelihood of a constructive dismissal claim.
One simple way to reduce the chances of a constructive dismissal claim is to obtain an employee’s written consent for such changes. An employer should be honest and respectful with the employee about the changes to their employment.
It is good practice to provide an employee with clear notice that the change will occur on a specific date in the future, and possibly offer a signing bonus or other additional benefit to the employee to ensure the new agreement’s enforceability.
The amount of notice an employer provides an employee about a major change to their employment terms should reflect their notice entitlements upon termination. This could reduce the employer’s exposure to notice period damages, otherwise known as severance if an employee then decides to commence a constructive dismissal claim against their employer.
Another way employers can minimize the risk of constructive dismissal claims in their workplace is by not making ultimatums. Forcing your employee to accept a change to their employment by the threat of termination or demanding a resignation is a common mistake that can cost employers a lot of money in legal costs, severance, and other damages. A court may consider these actions explicit evidence the employer does not actually want the employee to keep working for them, leaning in favor of granting that employee damages for constructive dismissal.
If an employee raises concerns about workplace bullying and harassment, an employer should take the complaint seriously, and investigate it thoroughly. An employer who ignores employee complaints about or does not address a toxic work environment only makes it easier for the employee to allege they could not continue in their employment anymore because of the toxic working conditions.
There is no substitute for getting tailored legal advice from an employment lawyer to minimize an employer’s risks of constructive dismissal. Whether an employer wants to update their employment agreements, change any terms, or take other actions that will impact an employee’s terms of employment, they should consult with an experienced workplace lawyer to determine what the legal risks are and what specific strategies they should use to minimize those risks.
When parties enter into an employment relationship, it is governed by mutually agreed terms each party can rely on for the duration of the employment. Therefore, making unilateral changes to the terms of employment or otherwise making the employment relationship unreasonable for the employee to continue may expose employers to a potential constructive dismissal claim.
If you are an employer looking to make changes in your workplace, especially relating to employees and the terms of their employment, a well-thought-out strategy can significantly reduce the legal risks of a constructive dismissal claim.
An employer should understand the terms they might be changing for an employee and determine if the change or other actions will significantly vary the terms of the employment relationship. There is no greater way to reduce your legal risks of a constructive dismissal claim for employers than consulting with an employment lawyer who can provide tailored legal advice and workplace strategies.
- What Qualifies As Constructive Dismissal?
- Can You Claim Constructive Dismissal Without Resigning?
- Non-Discretionary Bonus and Performance Reviews: When Is It Constructive Dismissal?
- Constructive Dismissal Due To Management or Bullying
Contact Achkar Law
If you have any questions about making changes as an employer, our team of experienced constructive dismissal lawyers at Achkar Law can help.