Suspension with Pay May Constitute Constructive Dismissal
In Potter v. New Brunswick Legal Aid Services Commission, the Supreme Court of Canada concluded that a non-unionized employee who is suspended with pay is constructively dismissed when there is no express or implied authority for the suspension of the employee and the suspension is both unjust and unreasonable.
Mr. Potter, the employee, was a lawyer serving on a seven-year appointment pursuant to the New Brunswick Legal Aid Act as Executive Director of Legal Aid for the New Brunswick Legal Aid Services Commission (“Commission”). The Employee had completed nearly four years of his contract when negotiations for the early termination of his employment contract commenced. During these negotiations, the Employee took a period of three months off work for medical reasons. While on sick leave and without his knowledge, the Commission recommended that the Employee be dismissed for cause. He was advised that while his salary would continue, he was “not to return to work until further notice”.
A few weeks later, the Employee commenced an action claiming that he had been constructively dismissed by the imposition of an indefinite suspension. He claimed general and punitive damages, and declarations that the Commission had no authority to suspend him and had unlawfully obstructed and delegated his statutory duties. In response, the Commission ceased to pay his salary taking the position that the Employee had resigned.
At trial, the judge and then the Court of Appeal disagreed, holding instead that the Employee elected to repudiate the contract when he commenced legal action against the Commission. The lower courts held that although his appointment was pursuant to the Act, the Commission was authorised to supervise the position. Furthermore, given that the Employee did not know that the Commission had recommended his termination; he had no reason to conclude that he was being terminated; in fact, the Court of Appeal found that this was not the Commission’s intention.
Before the Supreme Court of Canada, the issue was narrowed to whether and in what circumstances a non-unionized employee who is suspended with pay may claim to have been constructively dismissed.
The Supreme Court began its analysis by reviewing the law of constructive dismissal in Canada. It recognized that the law characterizes an employer’s conduct which evinces an intention to no longer be bound by the contract as a dismissal. The test to be applied identifies a term of the employment contract that the employer has unilaterally changed to the detriment of the employee without the employee’s acquiescence, and determines whether a reasonable person in the same situation would view the employer’s action or series of actions as an intention to no longer be bound by the contract.
The Supreme Court then articulated the following principles, which now govern the allegation of constructive dismissal where a non-unionized employee is suspended:
- Constructive dismissal does not require formal termination of employment; therefore, where there are common employers, the action of either of the two common employers short of termination can result in constructive dismissal. Therefore, the fact that only the Crown and not the Commission could formally terminate the Employee’s appointment was not determinative.
- Constructive dismissal can be established by an unauthorized suspension. Where there is an express or implied term of a voluntarily executed employment contract which authorizes suspensions, then a suspension will not be a unilateral act and thus not a constructive dismissal.
- A suspension can result in constructive dismissal because no employer is at liberty to withhold work from an employee either in bad faith or without justification given that modern developments in employment law view work as an essential component of ones’ sense of self-worth, identity and emotional well-being and as inclusive of a duty of good faith and fair dealing.
- An administrative suspension must be both reasonable and justified; all employers must meet the basic requirement of a good faith business justification. Factors to determine whether the employer has met this threshold include: the existence of legitimate business reasons, good faith, minimal duration of the suspension, and whether the suspension was with pay.
In applying these principles to this case, the Supreme Court found that the Employee was constructively dismissed:
- The employment contract was breached because the suspension was unauthorized and unilateral. The Act did not expressly authorize the Commission to suspend the Employee. Furthermore, there was no implied authority to suspend the Employee given that the nature of the employment relationship required the Commission to provide the Employee with work or to provide reasonable justification for failing to do so. The Commission failed in this regard because even though the Employee’s salary was maintained, the following facts constituted bad faith:
- his being uninformed about the reasons for the suspension,
- the indefinite duration of the suspension,
- the delegation of the Employee’s duties to another and
- the Commission’s pretense of negotiating a buyout of his contract when in fact the Commission sought to terminate it.
- It was reasonable for the Employee to perceive that the unauthorized unilateral suspension was a substantial change to the contract because he had been indefinitely suspended without being provided with a reason.
Finally the Supreme Court determined whether pension benefits received by the Employee should be deducted from his damages. The pension plan in question was governed by the Public Service Superannuation Act which was a contributory plan not intended to compensate in the event of a wrongful dismissal. The Act prevents a retired employee who returns to the public service from collecting pension benefits while at the same time receiving a salary as an employee. However, the Act does not establish a general bar on the receipt of both a pension entitlement and employment income and it does not apply to an employee who has been wrongfully dismissed and is entitled to receive damages as a result of that wrongful dismissal. Accordingly, the Supreme Court held that the benefits should not be deducted.
This Supreme Court of Canada decision is a caution to employers to clearly outline in the employment contract its authority to unilaterally suspend an employee with or without pay as an administrative or disciplinary measure.