eCaseNote 2017 No. 02

Maneuvering Around Constructive Dismissal: Can It Be Done?

Nufrio v. Allstate Insurance Company of Canada, 2016 ONSC 2791

Constructive dismissal, as described by the Supreme Court of Canada in Farber v. Royal Trust Co., “…occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee.” If an employer makes such change, an employee may treat the employment contract as wrongfully terminated which then gives rise to an obligation on behalf of the employer to provide pay in lieu of reasonable notice.

In the case of Wronko v. Western Inventory Service Ltd., the Ontario Court of Appeal held that for an employer to avoid a claim of constructive dismissal, the employer must advise the employee of the effective date of a unilateral and fundamental change to the employment contract and it must be clear that if an employee does not accept the change, there is no other option than the termination of employment. Essentially, the employer is required to give fair warning of the consequences if the employee refuses the unilateral and fundamental change to the employment contract. Without fair warning, a constructive dismissal will arise when the employer implements the unilateral change. “Fair warning” has been generally understood to coincide with reasonable notice in terms of the length of time required.

In the recent Ontario case of Nufrio v. Allstate Insurance, the employer provided twenty-four months’ notice to its sales agents regarding changes to their compensation and sales distribution model and the location of their employment. The employer’s notice did not explicitly state that employment would be terminated if the changes were not accepted. An employee was then terminated for failing to accept the changes. Justice Pollak of the Ontario Superior Court held that the employee had not been constructively dismissed because the length of notice was sufficient and clear and there was no evidence that the employer acquiesced to the employee’s refusal to accept the changes. Despite the absence of an explicit statement in the notice that employment would be terminated if the changes were not accepted, the Court reasoned that it was apparent that termination was the only option.

While Nufrio is not strictly binding upon the Newfoundland and Labrador Courts, it would likely be considered persuasive, and represents a further evolution in our constructive dismissal laws.

Lessons to Employers

Not all unilateral changes to employment contracts will automatically constitute constructive dismissal. An employer has the right to decide what terms and conditions it is willing to offer to its employees. However, it cannot change the terms of employment without notice. Providing notice to employees of any changes being made to the conditions of their employment is the most important factor in avoiding claims of constructive dismissal.

Notice of unilateral changes to employment contracts should be clear and unequivocal. There should be no uncertainty about the consequence if an employee refuses to accept a unilateral change to their employment contract. If an employee refuses to accept the changes, the employer should reconfirm that the changes will be implemented as planned. If an employer acquiesces to an employee’s refusal to accept a unilateral change, it may void any previous notice of change.

Do not implement any unilateral changes during the notice period. If an employer gives effect to the unilateral changes before the end of the notice period, the notice may be considered void and give rise to constructive dismissal.

Length of the notice period will vary according to the circumstances. What constitutes a sufficient notice period will depend on the type of unilateral change that is being made. As always, it is recommended that employers seek legal advice before initiating any changes to employment terms.

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.