A constructive dismissal occurs when an employee resigns in circumstances that allow him or her to have the resignation treated as a termination without cause or notice. In short, it is resignation with compensation. The word “constructive” in this instance means “interpretive” – the employee asks the court to interpret his or her resignation as a dismissal.
Unilateral change to the contract
A constructive dismissal most commonly results from the employer unilaterally changing a fundamental term of the employment contract. That could allow the employee to reject the change, resign their position, and then seek compensation as though there was a wrongful dismissal. In short, a constructive dismissal is a change to the contract that amounts to a repudiation of the contract by the employer and an attempt to replace it with a new contract.
Unilateral changes that might result in a constructive dismissal include significant reductions in managerial authority, remuneration, or benefits, or even changes to a job title (particularly if the new title suggests a demotion).
Not all changes that employees might dislike will cause a constructive dismissal. For example, in some circumstances even a reduction in pay of 10% might not meet the threshold.
Poisoned work environment
A constructive dismissal can also result from a poisoned work environment. However, the threshold is fairly high for when a bad workplace situation justifies a finding of constructive dismissal. Some cases have suggested that a poisoned work environment will only lead to a constructive dismissal where the employee proves there was serious wrongful behaviour that made continued employment impossible or unreasonable.
This area of law is notoriously tricky, so be sure to get good legal advice. Challenging issues can arise, such as whether the duty to mitigate created an obligation on the employee to accept the unilateral change, even though it represented the employer’s repudiation of the contract.
It is also important to note that a court might deem an employee to have acquiesced to a change if they don’t object or resign within a reasonable amount of time. That is, delaying for too long after the change could prevent one from successfully claiming constructive dismissal.