SCC: Indefinite Suspension With Pay May Be Constructive Dismissal

The Supreme Court of Canada recently released an important decision, in which it found that the former Director of N.B. Legal Aid had been constructively dismissed when he was placed on an administrative leave with pay, and most of his duties were assigned to a colleague. 

The Facts

In Potter v. New Brunswick Legal Aid Services Commission, the plaintiff had been the interim Director of Legal Aid for 12 years before receiving an appointment from the Lieutenant-Governor in Council in 2005.  He was appointed to serve as Executive Director for a term of 7 years.  However, approximately halfway through his appointment, relations with the Legal Aid Commission began to deteriorate, and the parties started negotiating the terms of a buy-out for the ED.  In the fall of 2009, the plaintiff went on a medical leave.  During his absence, he delegated his responsibilities to a colleague.  He was due to return to work in mid-January 2010, but by then the Commission had determined that the negotiated package was not progressing quickly enough.  Instead, the Commission advised the plaintiff that he should not return to the office, although he would continue to receive full pay and benefits.  In the meantime, and unbeknownst to the plaintiff, the Commission had also forwarded a recommendation to the Lieutenant-Governor in Council that the plaintiff's appointment should be revoked for cause.  The plaintiff's lawyer contacted the Commission to confirm that he had been suspended indefinitely, which the Commission's lawyer confirmed. 

He then commenced an action for constructive dismissal.  The Commission took the position that his employment had not been terminated, and that he had effectively resigned by starting a legal claim against his employer.

The Trial and Appeal Decisions

The employer prevailed at both the trial and appellate levels of the New Brunswick Courts. In essence, the New Brunswick Court of Queen's Bench found that the indefinite suspension of the plaintiff did not constitute a constructive dismissal, based in part on the fact that the plaintiff could not rely on the employer's recommendation to revoke his appointment. Moreover, given that the plaintiff had taken the "precipitous" and "dramatic" action of commencing a claim for wrongful dismissal (after he had been off work for approximately 7 weeks), the Court concluded that he had repudiated the contract of employment. 

The trial judge did provide a provisional assessment of the plaintiff's damages (in case the decision was successfully appealed), and found that the plaintiff would have been entitled to his remaining salary for the balance of the 7-year term of his contract, less amounts that he would have received by way of pension benefits (which he was eligible to receive).  However, the judge also found that because of his age (66 years old) and the low likelihood of him finding comparable employment, the plaintiff would not be subject to the duty to mitigate his damages.

The New Brunswick Court of Appeal upheld the decision of the trial judge, finding that the Commission had the authority to suspend the plaintiff with pay as part of its responsibility to oversee and supervise his work.  The Court of Appeal found that the judge had considered the relevant factors in concluding that the employer had not made a fundamental change to the plaintiff's terms of employment.  The Court of Appeal did suggest that the trial judge may have been in error in finding that only circumstances known to the plaintiff at the time were relevant, and should have considered whether the recommendation to revoke the plaintiff's appointment created an objective perception that the employer intended to not be bound by his contract.  However, the Court went on to find that such an error was "wholly harmless" and would not have changed the outcome.

The SCC's Decision

In a lengthy decision, the majority of the Supreme Court of Canada (McLachlin C.J. and Cromwell J. concurring in separate reasons) upheld the appeal and found that the Courts below had erred in finding that the plaintiff was not constructively dismissed. The majority's analysis started with a very succinct statement of the law of constructive dismissal:

When an employer’s conduct evinces an intention no longer to be bound by the employment contract, the employee has the choice of either accepting that conduct or the changes made by the employer, or treating the conduct or changes as a repudiation of the contract by the employer and suing for wrongful dismissal.

In assessing the evidence of whether the employer no longer intended to be bound, one has to determine whether the employer has breached a term of the employment contract, and whether the breach is sufficiently serious to constitute a repudiation of the contract.  While constructive dismissal often arises from a unilateral change to a key term of the employment relationship, an employer may also be found to have constructively dismissed an employee where its treatment of the employee makes continued employment intolerable.  Unless the employer can point to some contractual authority for taking the action that it has, or the employee consents, its unilateral actions will be found to constitute a breach of the contract. A minor breach will not amount to constructive dismissal.

The Court went on to state that, although the plaintiff bears the burden of proving that there has been a breach of the contract, in the case of an administrative suspension the burden shifts to the employer to establish that the suspension was "justified".  If the employer fails to justify the suspension, the burden returns to the plaintiff to establish that the breach of contract was "fundamental" or so significant that the employment contract was repudiated. 

In applying the law to the facts, the Supreme Court found that the courts below had erred in their analysis.  The majority was of the view that the Commission did not have the authority, express or implied, to administratively suspend the plaintiff, and so its actions were not permitted by the contract.  The Court found that, "[i]n light of the indefinite duration of the suspension, of the fact that the Commission failed to act in good faith insofar as it withheld valid business reasons from Mr. Potter, and of the Commission’s concealed intention to have Mr. Potter terminated", the Commission had, in fact, constructively dismissed the plaintiff.  The Court concluded that the trial judge erred in not considering the Commission's attempt to revoke the plaintiff's appointment in determining whether there had been a breach of the contract.  Although the plaintiff was not aware of this action at the time of commencing his claim, it was still relevant to whether the employer had breached the contract (i.e., by suspending the plaintiff without the requisite contractual authority to do so).  Such evidence would not, however, be relevant to whether a reasonable person in the circumstances of the plaintiff would consider the breach sufficiently serious to suggest the employer no longer intended to be bound by the contract.  Moreover, the Court also found that "in most cases in which a breach of an employment contract results from an unauthorized administrative suspension, a finding that the suspension amounted to a substantial change is inevitable."  This case was no exception.

Interestingly, the minority decision (penned by Justice Cromwell) came to the same conclusion, but on the basis that the employer's actions showed an intention to no longer be bound by the plaintiff's contract.  Cromwell J. was of the view that it was irrelevant whether or not the contract expressly or impliedly authorized the employer to suspend the employee:  the trial judge and the Court of Appeal had failed to take into consideration the fact that, at the time of the suspension, the employer was actively seeking to have the plaintiff's appointment revoked.  This was a highly relevant circumstance, despite the fact that the plaintiff was unaware of the employer's actions at the time.  In seeking to bring the contract to an end, and advising the employee not to return to the workplace, the employer had offered an "anticipatory repudiation" of the contract, which permitted the employee to treat their agreement as being at an end.

Both the majority and minority decisions also overturned the trial judge's provisional damages assessment.  In particular, the Court reaffirmed that pension benefits received by an employee should not be deducted from the employee's wrongful dismissal damages, on the basis of its earlier decision in IBM Canada Limited v. Waterman.  In short, private insurance benefits to which an employee contributes and which are not intended to provide an indemnity against loss of income or employment are not deductible from a payment in lieu of reasonable notice. 

What It Means for Employers
The Supreme Court of Canada made a number of important findings in the decision that employers need to be aware of:

• In the absence of express contractual authority for an employer to suspend an employee, an administrative suspension (with or without pay) may constitute constructive dismissal.  One has to look to the surrounding circumstances to assess whether the employer's actions evince "an intention no longer to be bound by the employment contract".
• Even if an employer has the authority to suspend an employee, the employer will still have to provide a justification for the suspension and establish that it was "reasonable" (e.g., that the suspension was not unnecessarily long).
• Even where an employee is not aware of actions on the part of the employer that suggest an intention to repudiate the employment agreement, those actions are relevant and admissible evidence of whether the employer has breached a term of the employment agreement.
• While there may not be an obligation on the part of an employer to provide an employee with work, the withholding of work from an employee may, in and of itself, constitute constructive dismissal in the absence of some legitimate reason.  Withholding work may amount to repudiation of the contract irrespective of the nature of the work - this rule should not apply only to employees whose income is tied to performing services or who receive a "reputational benefit" from working.

Employers will want to review their employment agreements (and any documents that are incorporated by reference) to determine whether they have the ability to suspend employees without effectively terminating their employment.  Where there is the requisite authority, employers should ensure that they have good reasons prior to suspending, and that they communicate those reasons to the employee.  Suspensions should not be any longer than necessary to address the underlying reason.  If an employee is to be suspended pending the outcome of an investigation (either internal or external) or some other proceeding, the employer should regularly communicate with the suspended employee and assess periodically whether the employment has effectively come to an end.  Employers should also take care in discussing the termination of an employee who is serving a suspension, as evidence of such discussions may tip the balance in favour of a finding that the employer intended to end the relationship.
 Need guidance with respect to whether your employment documentation gives you the right to suspend or layoff employees?  Looking for advice on whether or not to suspend an employee?  Contact Lance Ceaser for expert, affordable advice.