Constructive Dismissal: How “I Quit” Becomes “I Was Fired”

Your employee comes to you and tells you he is not happy with the new changes in his job. After a lengthy and heated discussion, he declares he cannot work for you anymore, and walks out. Clearly, the employee just quit his job. So how, then, does his apparent resignation become your wrongful dismissal?

Employment relationships generally end either by dismissal (employer-initiated) or by resignation (employee-initiated). Though often perceived as a dichotomy, the two might be better viewed as either end of a spectrum; constructive dismissal, then, falls somewhere in the middle. Remembering that the employment relationship is actually a specialized contract, constructive dismissal occurs when the employer chooses to substantially change the terms of that contract, without notice, such that the duties required of the employee are significantly different than that for which they were originally hired. It can also occur when a material term of the contract is changed, such as rate of pay, hours of work, contract length, or work location. The employee resigns, but only as a result of the actions taken by the employer.

As conditions change, businesses necessarily need to shift and adapt with them. Sometimes this means cutting costs – including wages. While adjusting employee hours, reducing wages, or changing pay structures may seem preferable to widespread layoffs, all can be considered forms of constructive dismissal. While the decision to change one position from full-time to part-time, for example, might make economic sense, the employee filling that position has now seen a material term of their employment contract change. Similarly, the decision to shift from salary to a commission based pay would also constitute a material change in employment terms.

Employers also need to be mindful of how they manage personnel to avoid constructive dismissal. Demotions, even where there has been no change in hours or pay, can constitute a material change in the employment contract. Improper disciplinary action can also be considered grounds for constructive dismissal. Case law has shown that, although placing an employee on disciplinary probation was permitted, when the employee was told he could be dismissed “at any time” during the probationary period, such a change constituted constructive dismissal. The loss of a reasonable notice of dismissal was a material change in the employment contract.

Employers are permitted to change the terms of an employment contract. Obviously, if the employee explicitly agrees to any changes in the employment terms, then there is no dispute. If the employee even continues to perform the work under the new terms of the contract without objecting, they can be considered to have impliedly consented to the changes. An employer can also unilaterally change the employment contract by simply providing adequate notice, just as they would when ending a contract; for instance, when one company wished to switch from a salaried pay scale to a commission-based pay, they phased it in over a number of years, and provided all of their employees with a minimum of two years’ notice of the change.

When changing the terms of an employment contract, especially material terms, employers should be mindful of the potential for such changes to amount to constructive dismissal. Whenever possible, changes should be made with the employee’s agreement or having provided employees with the same notice they would provide if terminating the employment contract.

This article is intended for information purposes only and is not intended to be legal advice.  We suggest you contact a lawyer for advice on your particular business and circumstance.