Constructive Dismissal Post-COVID - Chapter One

I have a bunch of draft constructive dismissal posts on the go, which I'm basically aborting because, the more I think about the subject, the more my thinking evolves. Constructive dismissal law is in need of a reinvention, especially in the wake of COVID-19.

So let's start a conversation about this. Consider this the first installment of a series on Redefining Constructive Dismissal.

Back To Basics

A constructive dismissal occurs where an employee makes a unilateral and fundamental change to the terms and conditions of the employment contract.

In practice, there are basically three or four kinds of constructive dismissal, though there's overlap between them:

1. Significant reduction in compensation.
2. Significant modification to the working conditions, duties, or expectations.
3. Temporary layoff/unpaid suspensions.
4. Permitting a toxic work environment to be created.

The last category, while factually complex, is legally less convoluted than other areas. A lot of the weird and arcane questions that arise in the first three categories simply don't arise, or otherwise have obvious answers, where there's an actual constructive dismissal in the last category.  So let's focus on the first three.

The Compensation Cases

In isolation, a reduction in compensation is tricky to litigate, because it needs to be 'fundamental' - which goes to the scale and type of the reduction - and it also creates a scenario where 'mitigation' is tough.

If you cut my wages by 20%, but change nothing else about my employment relationship...what are my options under the status quo framework?

Option #1 is to quit and sue...except that there's a good chance that the court will say "The employer was still offering you 80% of your wages; you should have stayed in the job to mitigate your loss while you looked for another one."

Option #2 is to stay in the job and tell the employer "I reject that change", and then possibly come back and sue for damages later.  It's actually quite rare that an employee pulls this off successfully, because it requires legal sophistication at the front end to preserve your rights.  And here's the other catch: If the employer successfully defends your action, there's case law suggesting that suing the employer for constructive dismissal is, in fact, a repudiation of the employment contract.

Option #3 is to stay in the job and stay silent.  Under the status quo, the case law suggests that, once you've stayed for a period of time, you've impliedly assented to the change, and don't have a claim.

The Changes in Working Conditions Cases

In isolation, these cases are also tough. Establishing the change itself can, at times, be challenging; establishing that the change is sufficiently fundamental to be entitled to treat it as a constructive dismissal is deeply contextual; and then there's STILL a risk that the court will say, "But you should have stayed anyways to mitigate your entire loss."

In cases where there's an environment of hostility, where there's a demotion or loss of prestige, etc., an employee might be justified in saying "I couldn't stay there", but employers have a pretty wide latitude to change the duties and expectations of employees.

The options of the employee aren't that different here from the Compensation Cases, but there are differences: Notwithstanding some rare gems of cases where employees stay in the job while REFUSING to perform the different duties or meet the modified expectations, staying in the job in these cases usually requires some active acquiescence by the employee.

Temporary Layoff Cases

Absent an express or implied contractual term otherwise, which is rare outside of union contexts, a temporary layoff constitutes a constructive dismissal.

Functionally, I regard these cases as being closely related to the compensation cases, but with the added bonus that returning to work upon recall usually means 100% mitigation of your loss outside of the period of the layoff.

Also, returning to the job 'under protest' seems especially silly to your average employee in these cases, because that's usually when the employer is offering to RESUME paying you.

But returning without protest is likely to lead not only to employers taking the position later that you acquiesced to that layoff, but ALSO to them taking the position that you impliedly agreed to a contractual term that temporary layoffs were okay, so THEY CAN DO IT AGAIN.  (I'm not actually aware of any cases where the "But we laid him off before, and he didn't complain" defence has worked, but I've seen the argument made lots of times.)

The Duty To Make A Timely Election

There are a lot of things that need to be parsed here, but let's start with this: Employees faced with a constructive dismissal are said to have a duty to make a timely election.

This derives from the doctrine of repudiatory breach. If I enter into a commercial contract, and the other party either fundamentally breaches the contract or indicates an intention to do so, I have an election of either accepting the repudiation and treating the contract as at an end, and suing for any damages based on the breach and premature end to the contract, OR I can 'affirm' the contract and hold the other party to its obligations, and sue for any breaches. I have to make an election in a timely manner; I can't indefinitely go on as if the contract is still alive, and then at a much later stage say, "Remember how you missed that important deadline for that deliverable six months ago? Now I'm accepting your repudiation and treating the contract as at an end."

Not all parties to contracts are lawyers, and there's some factual nuance in HOW acceptance (of the repudiation) or affirmation (of the contract) are communicated, but in general, acceptance of a repudiation has to be pretty clearly communicated to the breaching party, and continuing on with business as usual will typically be seen as an affirmation.

What's REALLY important to note, however, is that neither option changes the terms of the contract.  Regardless of which option I choose, I'm still entitled to sue the other party on any breach of the contract as agreed.

And this is where constructive dismissal gets muddy, because at a certain point, employees are said to have acquiesced to the new terms of the contract, such that the unilateral changes originally imposed by the employer now form a term of the contract.

This should, at a glance, raise some eyebrows. A contract, by definition, is one agreed to by both parties.  The old Latin maxim "qui tacet consentire" has relatively little stock in law, and none here: There's no particular magic word or action to acceptance, and it can be a 'yes', a nod, a handshake, or even less than that, but acceptance DOES require some affirmative and unambiguous indication of agreement by the offeree.

The argument goes that, by continuing to work under the auspices of the new terms imposed by the employer, simply showing up to work indicates such agreement.

However, under most circumstances, that's far from unambiguous: Showing up for work is easily consistent with an employee who is treating the contract as at an end but mitigating their loss, or with an employee who is affirming the terms and conditions of the original contract and continuing to perform their obligations under it.

The discussion here circles a range of other words as to the employee's actions: Did they 'condone' the change? 'Acquiesce' to the change?  But those word choices are foreign to the formation of a contract, where the real question is whether or not the offeree "agreed" to the terms.

In fact, it's even an odd construction to treat the employer's imposition of new terms as an 'offer' in the first place, when, almost by definition, we're talking about an imposition that does NOT seek the employee's assent. Trying to find an implied response, in an employee's conduct, to a question that was never actually asked, is some pretty deep 'legal fiction' stuff.

It does seem that, for some types of contractual changes, continuing the relationship past the end of the applicable notice period probably ought to be regarded as integrating the change into the relationship:  If my employer cuts my pay by 20%, and I'm entitled to six months' notice of termination, it'd be WEIRD for me to be able to work for two years at the reduced rate then sue to be topped up over the full two year period.  On the other hand, I find it less compelling to say that an employee, having returned from a temporary layoff, should be taken as understanding that the recall is subject to some sort of implied term that temporary layoffs are okay moving forward.

I can conceive of possible analytical frameworks that deal with these issues in a coherent way, but I'd invite discussion of the point:  At what point, and under what circumstances, should we conclude that the employer's contract-breaching conduct constitutes an "Offer", and that the employee's decision to continue to report for work constitutes "Acceptance"?

Put another way, how does a breach of contract transition into a term of the contract?

Implications

One of the things I want to highlight - and this actually shouldn't be all that controversial, under the status quo - is that regardless of subsequent changes to the terms of the employment relationship, the unilateral imposition of different terms in the first place (whether fundamental or not) by the employer is a breach of contract, which is not cured by later express or implied changes to the terms of the contract.

This is often lost in the dialogue of constructive dismissal. Do an internet search for terms related to salary reductions, and you'll find lots of law firm blogs and newsletters talking about the risk of a 'constructive dismissal' claim - and you could understandably walk away under the illusion that an employer has an entitlement to unilaterally make a non-fundamental reduction to compensation.

However, a breach of contract doesn't need to be 'fundamental' to be actionable. (Consider the case of Poole v. Tomenson Saunders Whitehead Ltd., where the employer paid a bonus less than the minimum contemplated in the employment contract.  It was not a fundamental breach, and so the constructive dismissal action failed, but the employer was still liable for the shortfall in the bonus.)

Post-COVID, expect to see a lot of these cases - where an employee was temporarily laid off, or had their compensation cut, and who didn't protest at the time, because they felt lucky to have a job at all in the pandemic...but who, upon later leaving employment, likely for unrelated reasons, pursues a remedy based on that breach by the employer.  As long as the action is brought within the applicable limitations period, there's no coherent legal or equitable reason to suggest that the employee's cause of action was extinguished by their decision to stay in the job for ANY length of time.

It seems at least plausible to me that there may be class actions in some contexts, too, which would raise the potential exposure of some employers significantly.

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Dennis Buchanan is a lawyer practicing labour and employment law and civil litigation in Edmonton, Alberta.

This post does not contain legal advice, but only general legal information.  It does not create a solicitor-client relationship with any readers.  If you have a legal issue or potential issue, please consult a lawyer.