eCaseNote 2015 No. 04

No Work and All Pay Makes Employees File Lawsuits - Avoiding Constructive Dismissal Claims from Employees on Administrative Suspension

Potter v New Brunswick Legal Aid Services Commission, 2015 SCC 10

The recent Supreme Court of Canada decision in Potter v New Brunswick Legal Aid Services Commission stresses the need for employers to act in good faith and with adequate justification before and in the course of suspending an employee from work. Administrative suspensions might seem like a measured first step while an investigation is being conducted, but such suspensions can, in certain circumstances, amount to constructive dismissal, and expose employers to liability.

Background. Mr. Potter was the Executive Director of the New Brunswick Legal Aid Services Commission. His employment relationship with the Board of Directors of the Commission became strained, and negotiations for a buyout of the remaining half of Mr. Potter’s seven-year contract began in the spring of 2009. In the fall of that year, Mr. Potter took medical leave. Then, the Board sought termination for cause, although the buyout negotiations were unfinished. Mr. Potter was instructed not to return to work, but not informed of the decision to seek termination for cause. Eight weeks into Mr. Potter’s paid administrative suspension, he filed the lawsuit alleging constructive dismissal.

Constructive Dismissal. Constructive dismissal can be found if an express or implied term of the employment contract has been sufficiently seriously breached, or if the more general conduct of an employer indicates an intention not to be bound by an employment contract.

For the kind of constructive dismissal based on a specific breach to be found,

  1. the employer must have unilaterally changed the contract, without the consent or acquiescence of the employee, in a way that is detrimental to the employee, and
  2. a reasonable person in the employee’s situation would feel the essential terms of the employment were being substantially changed.

In Mr. Potter’s case, the administrative suspension amounted to this type of constructive dismissal.

A New Implied Contractual Term. The Supreme Court of Canada held that employers do not have an unfettered discretion to withhold work from their employees. Particularly, no employer is at liberty to withhold work in bad faith or without justification. This is an implied term of every employment contract. Suspension, even with pay, thus must be justified by the employer, since it means the employee is prevented from working.

Normally, the burden of proof for constructive dismissal rests with the employee. However, when an administrative suspension occurs, it is the employer who has the burden of demonstrating the justified, reasonable nature of the suspension. If the suspension is unjustified, a breach of an implied term in the employment contract will be identified. It is still up to the employee to prove that the breach was objectively substantial. However, an administrative suspension will automatically be considered a substantial breach unless, perhaps, its duration is extremely short. Thus, it is imperative for employers to justify their decision to suspend an employee, even with pay.

A decision to suspend can be justified if it is based on legitimate business reasons for the suspension—for instance, harm to an employer’s reputation or product. The nature of the reasons necessary to justify suspension will vary with the circumstances. Courts will also look at whether a suspension is paid, and its duration, in evaluating reasonableness.

The duty of good faith in contractual dealings requires employers to be forthright and honest. Employees should therefore be made aware of the reasons for the suspension.

Lessons for Employers. Employers should be careful to identify legitimate business reasons for suspending an employee, and to share those legitimate business reasons for a suspension with the affected employee. Additionally, employers should limit the duration of such suspensions to a specific period of time. Indefinite suspensions are likely to attract more scrutiny and amount to constructive dismissal. It is not enough for a suspension to be paid for it to be justified—however, an unpaid suspension is even more likely to be deemed unreasonable.

Moreover, as the determination of constructive dismissal is highly fact-specific, seeking legal counsel on a particular scenario is prudent.

The comments contained in this eCaseNote provide general information only and should not be construed as legal advice or opinion. For more information or specific advice on matters of interest, please call our offices at (709) 579-2081.