Supreme Court Rules on Employee Suspensions and Constructive Dismissal

On Friday morning the Supreme Court of Canada released its decision in Potter v. New Brunswick Legal Aid Services Commission. The decision related to whether and in what circumstances an employee is deemed to be constructively dismissed when suspended with pay. Overturning the decision of the New Brunswick Court of Appeal, which upheld the lower court decision, the Supreme Court unanimously determined (with concurring reasons) that David Potter was constructively dismissed from his position as the Executive Director of Legal Aid.

Mr. Potter was initially hired for a seven-year term. Roughly half way into his seven-year term, Mr. Potter and the Board of Directors had entered into discussions to negotiate a buyout of his contract. However, before negotiations were completed, Mr. Potter went on sick leave. Shortly before he was to return from sick leave, the Board informed him that he "ought not" to return to the workplace. Upon seeking clarification, Mr. Potter was told that he was not to report to work until further notice. Eight weeks after he was put on indefinite suspension, Mr. Potter commenced an action for constructive dismissal arguing that, in suspending him, the Board had breached a fundamental term of his employment contract. The Board then took the position that by taking legal action Mr. Potter had effectively resigned from his position and they stopped paying his salary and benefits.

The Court determined that Mr. Potter was constructively dismissed when he was suspended with pay for an indefinite period of time. Of particular concern to the Court was the fact that he was not told the reasons for his suspension. As a result of the constructive dismissal, the Court awarded Mr. Potter his salary for the balance of the term of his employment agreement.

The Court's analysis included a number of interesting comments and clarifications relating to administrative (non-disciplinary) suspensions. The Court noted that an administrative suspension will almost certainly amount to constructive dismissal unless it is either expressly or impliedly permitted under the employment contract. Whether the power to administratively suspend is an express term is fairly straightforward, however an administrative suspension will only be considered an implied term of an employment contract if it is reasonable and justified.

The Court explained that a number of factors may be relevant in determining whether a suspension is reasonable and justified, but it will always be relevant to consider the duration of the suspension whether it was with pay and whether it was in done good faith with a legitimate business reason. Though the significance of these factors will depend on the circumstances, an employer will not have the implied authority to suspend an employee unless there is a legitimate business reason.

Finally, the Court provided some guidance on whether an employee bringing an action for constructive dismissal is thereby resigning. Under traditional principles of employment law such an employee would ordinarily be found to have repudiated his/her employment contract. However, the Court indicated that when an employee continues to work under protest (instead of resigning) following changes to his/her employment contract, so long as the relationship has not become untenable, it is not evident that the employee should be deemed to have resigned just because they sue for constructive dismissal.

Although this decision was perhaps intended to clarify this area of the law, some would say that the result causes greater uncertainty. We would say that rigid rules are impossible when dealing with such a complex and discretionary question as constructive dismissal. At least the Supreme Court has now clearly identified the tests to be applied.